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Asset Protection for Professionals and Business Owners
Exempt Assets
Florida law provides various ways to protect your assets from creditors. The most basic planning involves owning assets that are exempt under Florida law, such as homestead, life insurance, annuities, and retirement accounts. Click here to download a listing of Florida's exempt assets; note that while some states allow you to choose either the state or federal exemptions, in Florida you must use the state exemptions and federal bankruptcy exemptions are not available.Once you have identified the protected asset classes available to you under applicable law, it may be prudent to maximize your protection by converting non-exempt assets into exempt assets.
Florida also has what is known as “tenancy by the entirety”, a form of ownership of assets between a husband and wife. Very similar to a joint tenancy with right of survivorship in that the asset will automatically become owned by the surviving spouse upon the first death without having to go through probate, tenancy by the entirety has the additional feature of protecting the entire asset from the creditors of only one spouse. Only if a particular debt is owed by both spouses can the creditor attach (levy upon and sell) tenancy by the entirety property.
Business Owners
For business owners, it is
important to establish the business in the form of a corporation or limited
liability company. Both types of
entities will help protect your personal assets from the claims of business creditors.
But what about protecting
business assets from your personal creditors?
A corporation does not help here, because corporate stock that you own
can be attached by your personal creditors.
A limited liability company (LLC) is the answer. Under Florida law, a person’s ownership
interest in a multi-member LLC (i.e. an LLC with more than one owner) cannot be
attached. The most the creditor can do
is obtain a “charging order” requiring that any profits distributed be paid to
it. In the meantime the creditor becomes
the owner for tax purposes and may suffer adverse tax consequences as a result,
so quite often a creditor may forego the charging order remedy.
The membership interests of a
single member LLC can be attached by creditors, but only under certain
circumstances, so LLC membership interests still enjoy more asset protection
than corporate stock.
Whatever type of asset
protection planning you decide to do, it is important to do so before you
develop problems paying your creditors.
If you wait too long to engage in asset protection planning you could
run afoul of Florida’s fraudulent transfer laws. Although homestead transactions are exempt
from fraudulent transfer laws in Florida, you could still be denied a
bankruptcy discharge for engaging in them.
For more information on asset
protection planning in Florida, please contact us.
Asset Protection Resources:
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