5 Common Asset Protection Tools

Asset protection is the legal strategy of structuring your wealth to shield it from future lawsuits, creditors, and judgments. Here are five common asset protection tools we see in our practice.

1. The Florida Homestead Exemption

The Florida homestead exemption is the most powerful asset protection tool available nationwide. Under Article X, Section 4 of the Florida Constitution, your primary residence is protected from forced sale by most creditors (with exceptions for mortgages, tax liens, and contractor liens).

Unlike many other states that cap the dollar amount you can protect, Florida’s protection is unlimited in value. Whether your home is worth $300,000 or $30 million, a judgment creditor cannot force you to sell it to pay a debt.

In addition, fraudulent conveyances of non-exempt assets into a Florida homestead, in most cases, do not invalidate the exemption.

However, there are physical size limitations you must be aware of:

• Inside a municipality: The protection is limited to one-half (1/2) acre of contiguous land.
• Outside a municipality: The protection extends to 160 acres of contiguous land.

If you live within city limits and your lot exceeds half an acre, the creditor may be able to force a sale and keep the portion of the proceeds attributed to the surplus land.

2. Tenancy by the Entireties (TBE)

For married couples in Florida, owning property as tenants by the entireties offers a simple yet powerful level of protection. This form of ownership treats the husband and wife as a single legal unit. Consequently, a creditor of one spouse cannot seize assets owned by both spouses as tenants by the entireties.

For example, if a husband is sued for professional malpractice, the joint bank account he owns with his wife as TBE is off-limits to the creditor.

To qualify, the ownership must meet six specific legal requirements (the “six unities”), including:

• Unity of Possession (joint ownership and control)
• Unity of Interest (identical interest in the property)
• Unity of Time (interests must commence at the same time)
• Unity of Title (interests must be created by the same instrument)
• Survivorship
• Unity of Marriage (owners must be married at the time of acquiring the property)

TBE protection only works against individual creditors. If both spouses are sued jointly (e.g., for a debt they both co-signed), this protection does not apply.

3. Multi-Member Limited Liability Companies

Business owners and real estate investors frequently use Limited Liability Companies (LLCs) to separate their personal assets from business risks. However, not all LLCs offer the same level of protection in Florida.

In 2010, the Florida Supreme Court ruling in Olmstead v. FTC weakened the protection for single-member LLCs. The court ruled that a creditor could foreclose on a single member’s interest, effectively taking ownership of the company and its assets.

To combat this, we often recommend multi-member LLCs. Under Florida law, the exclusive remedy for a creditor against a debtor’s interest in a multi-member LLC is a charging order. A charging order gives the creditor the right to receive distributions (profits) that would otherwise go to the debtor, but it does not give the creditor voting rights or the ability to seize the company’s underlying assets.

Because the creditor cannot force a distribution, they may end up with a tax liability for phantom income without receiving any actual cash.

4. Protected Financial Products: Annuities and Life Insurance

Florida statutes exempt certain financial products.

The cash surrender value of a life insurance policy insuring the life of the debtor is exempt from attachment, garnishment, or legal process. In addition, the proceeds of annuity contracts are also fully exempt from creditors.

5. Offshore Asset Protection Trusts

Sometimes domestic strategies may not be enough. The ultimate level of protection is often found offshore, specifically with Cook Islands trusts.

An offshore asset protection trust moves the legal jurisdiction of your assets outside of the United States. If a US judge orders the trustee to turn over assets, the foreign trustee is not subject to US court orders and will refuse to comply. This forces the creditor to restart their lawsuit in the foreign jurisdiction, where the laws are heavily skewed in favor of the defendant.

With a Cook Islands trust, creditors often have only one or two years to bring a claim. The creditor must prove their case beyond a reasonable doubt, which is a criminal standard applied to a civil claim.

While an offshore trust is more expensive to establish and maintain than a domestic LLC, it remains the gold standard for protecting substantial liquid assets.

About the Author

Gideon Alper is a nationally recognized expert in asset protection planning. He has been quoted by major media publications as a leading authority in Florida asset protection and offshore trust formation. Gideon graduated with honors from Emory University Law School and has been practicing law for over 15 years.

Gideon and the Alper Law firm have advised thousands of clients about how to protect their assets from creditors.