We have run an articles series on Florida asset protection provided by the homestead exemption. Those articles addressed the homestead exemption in the context of creditor claims. In other words, they discussed how the homestead exemption protects property that is being attacked outside of bankruptcy. In a bankruptcy proceeding, homestead laws provide asset protection but not nearly to the same degree.
Asset Protection Shoppers
Remember WorldCom? To me, there is no better symbol of the tech bubble. WorldCom, a company based in Mississippi, actually provided a service and was profitable. But the executives became greedy. In order to manipulate WorldCom’s stock price, the executives engaged in accounting fraud and raked in millions for themselves at the expense of shareholders, who were left with literally nothing after the telecommunications giant filed bankruptcy.
Guess where nearly every executive involved in the scandal owned a home? You guessed it . . . Florida. Why? Prior to 2005, the homestead exemption allowed in bankruptcy was nearly unlimited. That meant that as long as the executives put their ill-gotten gains into a home that they occupied in Florida, their money was protected.
In fact, John Porters, the Chairman of WorldCom, was himself forced to file personal bankruptcy. Although Mr. Porters was never charged with any crimes in conjunction with the fraud at WorldCom, he ended up owing more than $70 million when the stock collapsed, much of it to the I.R.S. At the end of the day, however, Mr. Porters was able to keep about $17 million dollars, all of it from his Florida homestead.
In 2005, partly as a result of stories like WorldCom’s, Congress amended bankruptcy legislation. Today, a Florida homestead that is less than 40 months old is only entitled to an exemption of $125,000. The $125,000 cap is absolute if a bankruptcy debtor owes money for securities fraud or fiduciary fraud committed in the previous five years. There are lots of other rules and exceptions that apply.
While most people agree that these types of “criminal activity” exceptions are good, especially since homestead laws were originally intended to provide farmers with a form of asset protection, they affect everyone who has lived in Florida for less than 40 months. That means an alternative form of asset protection is needed during the interim. Everyone needs to take action now to protect their assets. Between the 2005 revisions to the bankruptcy laws and rules on fraudulent conveyances, can you really afford to wait on contacting an asset protection attorney?
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