You're in luck if you reside in Florida because the Sunshine State has arguably some of the most generous creditor exemption laws in the country. Let’s discuss a number of these exemptions and how you can use them to your advantage.
Creditor Exemptions in Florida
Asset protection laws can be found both in the Florida statutes and common law. Statutory exemptions are available only to those who permanently reside in Florida. It's important to note that asset protection doesn't mean creditors can't get judgments against you or your estate. They just make it challenging to collect on those judgments.
Some of the assets that are exempt from creditors include:
The Florida Homestead Exemption
The homestead exemption protects your primary residence from all creditors bar the ones holding a mortgage/lien on your property. Unlike other states, homestead exemption in Florida isn’t capped at any dollar amount, though there are some acreage limits.
The exemption offers 100% protection against the forced sale of a home and covers the total value of the property. To qualify for homestead exemption, the property must be in the name of natural persons. This means investment properties and homes held under LLCs, corporations, partnerships, or irrevocable trusts do not qualify.
But there are some exceptions to Florida’s homestead exemption, such as if the home was purchased with fraudulent money.
Life Insurance and Annuities
The cash value of a life insurance policy is wholly protected from creditors and lawsuits under Florida law, as are life insurance proceeds. However, if the insurance policy does not have a beneficiary, then the proceeds are no longer protected and can be claimed in the event of the debtor's death.
Annuities, especially those offered by traditional life insurance companies, are generally exempt from creditor claims. However, these protections don't always extend to private annuities, so it's advisable to consult with your lawyer on the same.
Here's another excellent reason to open a retirement account. All monies held in traditional retirement accounts, such as IRA accounts, 401(k), and 403(b), are fully protected from creditor claims under both federal and Florida laws. Inherited retirement accounts are also protected only if they're transferred to a surviving spouse or a non-spouse beneficiary who permanently resides in Florida.
That said, withdrawals from retirement accounts are not subject to the same protections.
Head of Household Exemption
A head of household is an individual who provides more than one-half of the support for a beneficiary like a child or a spouse. The wages of such a person, including salaries, wages, commissions, and bonuses, are generally exempt from attachment or garnishment.
There's no limit to the exemption, which means you can protect 100% of your earnings from creditors. Exempt earnings remain protected for up to six months, provided they are traceable and identifiable. Also, head of family isn't the only exemption you can use to stop a garnishment. Exemptions also extend to unemployment benefits, social security benefits, disability income, and veterans' benefits.
Spousal Exemption Linked to Jointly Held Property
By titling property as tenants by the entirety, married couples can effectively protect their property from the claims of creditors. Property held under a tenancy by entirety agreement is viewed as an indivisible fictional unit that cannot be severed without the consent of both parties.
As such, creditors cannot collect on the property unless the judgment is passed on both spouses. The protection afforded by this exemption is limited since the agreement survives for as long as the marriage remains.
Other assets that are protected from creditors include:
- Prepaid college plans
- Health aids
- Medical savings accounts
- $1,000 of personal property – extends to $4,000 if you do not own a home
- Cars are exempt up to $1,000 equity
Is Asset Protection Right for You?
Legal liability is a major concern for both business owners and individuals. For people in retirement or transitioning into retirement, it’s advisable to adopt strategies that will help protect you from creditor claims. Judgments can result in you losing your entire life's earnings or a considerable portion of it.
The best time to start asset protection planning is before problems arise. There’s a danger in waiting too long as you might not be able to safeguard all your assets effectively. Plus, judges tend to look closely at the timeline of events, and moving things around in anticipation of a judgment can cast doubts on your intentions.
Everyone is at a high risk of liability. Asset protection planning is a tool not just for those with a considerable amount of wealth but for anyone who has something to lose.