We’ve written quite a lot on the subject of asset protection homestead exemptions and the very strong protections afforded to Florida homesteads. Texas asset protection laws also afford strong protections to the homestead. One question that comes up from time to time relates to the homestead accounts. A homestead account is an account that contains money from the sale of a property that was protected under homestead exemption laws. It’s essentially a segregated account that contains no other money, and courts are usually pretty good about protecting segregated homestead accounts from creditor claims, especially in the context of bankruptcy.
How Long Does the Protection Last
The beautiful feature of homestead protection is that it’s indefinite in duration. It’s the ultimate asset protection tool, because in states where the exemption is unlimited (e.g. Florida and Texas), one can invest all their money into a homesteaded property and effectively protect wealth (though it’s certainly not the best way to grow wealth) without having to worry about offshore asset protection.
So if the duration of the homestead exemption is forever, how long is the protection from creditors afforded to homestead accounts? There is not cut and dried answer. Time is certainly a factor, but it is definitely not the only factor. A Florida bankruptcy court recently considered this question and allowed the debtor to exempt a 13 month old homestead account from creditor claims. Thirteen months is definitely more than expected, but the court weighed several factors besides time alone.
For example, the court noted that during the 13 month period, the debtor seriously looked at and considered purchasing between 6 and 12 different houses. The debtor also submitted reasonable written offers on three homes, and actually signed a contract on another home. Unfortunately none of the deals closed. In one case, a contract for purchase simply fell apart because of structural issues revealed in the home when it was professionally inspected.
Advice for Homesteaders
While the Florida case described above certainly extends a measure of protection for homestead accounts in Florida, its not applicable in states outside of Florida. Homestead laws vary considerably from state to state. Some states provide absolutely no homestead protection, while others give unlimited protection. If you live in a state where the laws are not favorable to homesteads, you need to consult with an asset protection attorney to determine how you can safely and legally protect your wealth and hard earned assets.
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