Asset Protection

Florida law provides considerable asset protection benefits to people that permanently reside in Florida.

• Pension and Profit Sharing Plans, IRAs. To prepare for retirement and to defer income taxation many direct significant wealth into IRA accounts and other tax qualified retirement plans. In Florida, retirement money not only defers income taxation, but it is protected from creditors as well. Section 222.21(2)(a) of the Florida Statutes provides that any money or other assets payable to participant or beneficiary in a qualified retirement or profit sharing plan is exempt from all claims from creditors of the beneficiary or participant. A debtor’s 
• Disability Income. Disability income benefits under any disability insurance policy are exempt from legal process in Florida. The exemption includes health, life, and accident disability insurance. Further, federal law protects Social Security Disability benefits from judgment creditors.
• ​Life Insurance Policies and Annuity Contracts. Cash value in insurance policies and all annuities are protected from creditors’ claims by Section 222.14 of the Florida Statutes. While a Florida resident is alive, the cash value of their insurance policy on their life or on another Florida resident is exempt from creditors’ claims. The protection afforded to the cash surrender value of a life insurance policy is only for the benefit of the owner/insured. Death benefits are not protected from the creditors of the policy beneficiary. The law does not protect the cash value of life insurance when the insured is someone other than the debtor; for instance a wife cannot exempt the cash value of a policy issued on the life of her spouse or child. 

Perhaps the most popular financial product for asset protection planning is an annuity. Annuities are exempt from creditors pursuant to Section 222.13 of the Florida Statutes. Florida courts have liberally construed this statutory exemption to include the broadest range of annuity contracts and arrangements. Private annuities between family members are entitled to the exemption as are the proceeds of personal injury settlements structured as an annuity. Additional protection is available by purchasing international annuities. Particularly, Switzerland and Liechtenstein have laws which guard annuities from attack by creditors for outside countries including the United States.

The protection of cash value of life insurance and annuities extends to proceeds of these assets after receipt. Florida courts have held that funds withdrawn from the cash value of a life insurance policy and annuity payments received by a debtor remain protected after they are deposited in a financial account as long as the funds can be accurately traced back to the exempt assets. The money does not have to be segregated in a separate account so long as it is traceable.

Only annuities issued to Florida residents in Florida are exempt. A current Florida resident who purchased an annuity in another state prior to moving to Florida may find that his annuity is not exempt from creditors when neither the prior state’s laws nor the terms of the annuity contract protect the annuity and its proceeds.

• ​Prepaid College Plans. Florida prepaid college tuition plans and Florida’s 529 College Saving Plan are protected from creditors under Section 222.22 of the Florida Statutes.
• ​Automobile Exemption. Under Florida law (Section 222.25, F.S.), residents may protect up to $5,000 of equity in an automobile. The fact that a debtor needs their vehicle for work does not protect the vehicle from creditors to the extent that the debtor’s equity (value less loan amount) exceeds $5,000.
• ​Miscellaneous Exemptions. Florida Statutes include several narrow asset exemptions such as professionally prescribed health aids, hurricane savings accounts (with restrictions), medical savings accounts, and unemployment benefits. A debtor’s bank account held in a custodian financial account for the benefit of a minor child under the Florida Uniform Transfers To Minors Act is also protected from the debtor’s creditors because the account is considered property of the minor beneficiary.
• ​Salary or Wages. Wages, earnings, or compensation of the head-of-household which are due for personal labor or services, including wages deposited into a bank account (provided they are traceable and identified as such) are exempt from garnishment under Section 222.11 of the Florida Statutes. A debtor is head-of-household if they financially support someone for which they have a legal or moral support obligation, such as a spouse, child, or parent. The dependent does not have to reside in the debtor’s primary residence. When a married couple is joint judgment debtors, only one spouse can be head-of-household. You may support someone for purposes of establishing head-of-household status even if you do not claim that person as a tax dependent on your federal income tax return. A debtor can waive wage exemption provided the waiver is informed and done in writing. The waiver is limited under federal law. Most often banks and lenders include head-of-household exemption waivers in the loan documents, thus entitling the creditor to garnish wages to execute a judgment even though the debtor is a head-of-household.

​Application In Other States. Florida exemptions have no extraterritorial effect. Florida residents cannot export Florida exemptions to protect tangible and intangible personal property located in states other than Florida. Florida residents who work and maintain accounts or other property outside of Florida are subject to the exemption laws where of the state where the work is performed and the property is situated. Financial accounts are situated at the branch office where the account is maintained. For example, if a New York resident opens an IRA account at a New York branch of a national brokerage, and the same person subsequently moves to Florida, the IRA account may not be exempt because it is deemed to be anchored at the branch where it was opened. This person should move the account to a Florida branch of the same brokerage house or to a new broker with Florida offices. Further, wages earned in another state may be subject to that state’s laws for garnishment and not receive the same protection as afforded under Florida law.

Fraudulent Transfers

A fraudulent conveyance is simply defined as an infringement of the creditor’s right to realize upon the available assets of the debtor. More particularly, it is fraudulent for a debtor to transfer its assets to a third party with intent to either actually or constructively obstruct creditors from reaching the assets to satisfy claims.

​Fraudulent transfers of assets in Florida are governed by Florida’s adaptation of the Uniform Fraudulent Transfer Act, Chapter 726, Florida Statutes (hereinafter “FUFTA”). The transfer of assets that are not exempt from the claims of creditors into assets that are exempt from the claims of creditors, is governed by Florida’s fraudulent conversion statute, §§222.29-222.30, Florida Statutes.

​A claim seeking relief pursuant to FUFTA is a claim arising out of equity, and is not an action at law. Accordingly, none of the creditor, the debtor, or any affected third parties are entitled to a jury trial for the issues raised by the claim.

​A fraudulent transfer as to present or future creditors is defined by FUFTA as:

(1) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:

(a) With actual intent to hinder, delay, or defraud any creditor of the debtor; or

(b) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:

1. Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
2. Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due.

Florida Statute §726.105(1). ​

Additionally, with respect to present creditors, a fraudulent transfer is further defined by FUFTA as follows:

(1) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.

(2) A transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.

Florida Statute §726.106. ​

Florida Statute §222.29 provides: An exemption from attachment, garnishment, or legal process provided by this chapter [Chapter 222, Exemptions] is not effective if it results from a fraudulent transfer or conveyance as provided in chapter 726.​

Florida Statute §222.30 adds the following:

(2) Any conversion by a debtor of an asset that results in the proceeds of the asset becoming exempt by law from the claims of a creditor of the debtor is a fraudulent asset conversion as to the creditor, whether the creditor’s claim to the asset arose before or after the conversion of the asset, if the debtor made the conversion with the intent to hinder, delay, or defraud the creditor.

​When construing the above provisions, the Florida Supreme Court has determined that these statutory provisions, allowing creditors to attack fraudulent conversions of assets from non-exempt to exempt, rightfully apply to all statutory exemptions other than the Constitutionally protected homestead exemption.

​A creditor is merely a person who “has a claim”. As defined in Florida Statute §726.102, a “claim” is broadly constructed and “means a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured” (Florida Statute §726.102(3)). It is well settled in Florida that a “claim” under the Act may be maintained even though “contingent” and not yet reduced to judgment.

​FUFTA sets forth, in § 726.110, time limits within which specific actions must be commenced. For transfers made with actual intent to defraud, hinder or delay creditors, the action must be commenced within four years of the transfer or, if later, within 1 year of discovery. Action must be brought within 4 years of the transfer if the debtor does not receive reasonably equivalent value for the transfer and (1) the debtor is engaged (or about to engage) in a business for which the remaining assets are unreasonably small in relation to the business or the debtor knows he/she will be unable to meet his/her debts, or (2) the debtor was insolvent at the time or became solvent as a result of the transfer. Action must be brought within 1 year for transfers made to an insider for an antecedent debt at a time when the debtor was insolvent and the insider had reasonable cause to believe that the debtor was insolvent.