Perhaps the strongest tool for asset protection in the United States is Florida’s Homestead Protection law. This law was created to protect Florida homes from creditor attacks, and understanding them is crucial to using them to their full potential.
Florida is sometimes referred to as a “debtor-friendly state,” and a significant part of the reputation is due to our state’s robust Homestead Protection law.
Article X, Section 4 of the Florida Constitution states that creditors cannot force the sale of your homestead in order to collect a debt. It also states that no creditor can put a lien on a homestead. This is the Homestead Protection, also known as the “Homestead Exemption.”
What exactly is a “homestead”?
Defining Your Homestead
A “homestead” refers to your primary place of residence, and it does not apply exclusively to houses. Florida courts have upheld homestead protection for condominiums, mobile homes, and manufactured homes in the past.
The Florida Constitution places some restrictions of the type of homestead protected under these laws. The Homestead exemption protects residences up to one half-acre within a municipality, and up to 160 contiguous acres outside of a city. Contiguous property can include lots with different legal descriptions and tax numbers.
Second homes and investment properties are not considered homesteads. To qualify for these protections, the homeowner in question must be a permanent Florida resident, and a “natural person.” Properties owned by businesses, corporations, and limited liability companies do not qualify. Property owned by a living trust, however, can be homestead property.
To qualify for homestead protections, you simply need to occupy the home with the intent of making it your permanent Florida homestead. The protection is valid from the first day you occupy, and you do not need to fill out any forms, file paperwork, or declare anything.
Why Is Homestead Protection Powerful?
In other states, if you die with debt to your name, creditors file a civil dispute with your estate. If they are successful, they can liquidate assets in your estate to settle your debts—including your home.
Fortunately, creditors and other predatory interests do not have that power in Florida. Your home can be passed down to your heirs through a will or trust without being vulnerable to creditor attack. This is part of the reason that Florida is considered a “debtor-friendly” state.
Another powerful element of Homestead Protection is the lack of limit on monetary protection. No matter the value of your home, it will protected (as long as it stays within the Constitution’s definition of a “homestead”).
Florida residents can invest any amount of money in estate homes, protecting the full value of their estate under Florida’s Homestead laws. Unprotected assets can be transferred into the homestead at any time, either through buying a new home or reducing the balance of an existing mortgage. In general, these assets will be protected under homestead laws, even if they were obviously transferred to keep them out of the hands of creditors.
Limitations to the Homestead Protections
There are some important limitations to Homestead Protection to be aware of. For example, co-ownership of a homestead can put the home at risk. If one co-owner does not reside on the property, the homestead is vulnerable to creditors.
For example, say a husband and wife co-owned a home. If the wife goes to live somewhere else, one of her judgment creditors could levy upon her portion of the homestead, and force the house to be liquidated.
Furthermore, the Florida Constitution makes special note of liens that it does not protect against. Homestead Protections do not cover liens “for the payment of taxes and assessments thereon, obligations contracted for the purchase, improvement or repair thereof, or obligations contracted for house, field or other labor performed on the realty.”
If a civil judgement occurs in the county where you live before you occupy your homestead, your home may not be protected from a lien laid down in that judgment. This can be avoided by not purchasing a home in any county where a creditor has recorded a judgment.
Homestead protection may also not apply for debtors who file for bankruptcy. A new bankruptcy law puts some limits on the protections of homesteads for debtors who declare bankruptcy. Homestead protection is available in bankruptcy up to $146,450, unless the debtor occupied his or her homestead for a continuous 40-month period. Joint bankruptcy debtors both have this amount of protection if they co-own their homestead. The new law does not affect homeowners outside of bankruptcy.
Interested in learning more about how you can protect your life’s work from creditors and superfluous lawsuits? Contact us today to ensure your estate ends up where you want it to.
About the Author:
Christopher Q. Wintter is the founder of Wintter & Associates, P.A. and a board-certified expert in Trust and Estate matters by the Florida Bar. With more than 24 years’ experience as a practicing attorney, he also serves as an instructor and faculty member for the National Institute of Trial Advocacy (NITA)—the nation’s leading provider of legal advocacy skills training to practicing attorneys—and has earned the AV® Preeminent™ rating with LexisNexis Martindale Hubbell. He was also selected for inclusion in Florida Super Lawyers for 2011 and 2012 in Estate and Trust Litigation.