Article X, Section 4, of Florida’s Constitution states in part that your homestead residence shall be exempt from forcibly being sold under process of any court. In addition, no judgment, decree or execution shall be a lien thereon, except for the payment of taxes, assessments, or obligations contracted for the purchase, improvement and labor performed or repairs made to the homestead property.
This means that in the State of Florida, the largest investment most people make in their lifetime is protected from being forcibly taken away from them to pay for judgments or debts charged against them. The general exceptions to this protection against forced sale are for the payment of taxes, secured mortgages on the homestead, and repairs and improvements made to a person’s homestead property where the contractor, subcontractor, sub-subcontractor or supplier have not been paid.
In the event a person finds themselves the subject of a law suit (e.g. traffic accident) where there is a real possibility that they will have a judgment filed against them, it is highly recommended that you make a statement, in writing, containing the description of the real property, mobile home, or modular home claimed to be exempt homestead and declare in writing that the real property, mobile home, or modular home is your homestead. Sign the document and have your signature notarized. Once you have completed this, have it recorded with the clerk of the circuit court where the homestead property lies. Keep in mind that it is not required to obtain a homestead tax exemption in the county where the property is located in order to qualify for Florida’s Constitutional exemption against forced sale.
In the event you do have a judgment filed against you from either an instate or out-of-state court, and you recently signed a contract to sell your homestead or obtained a commitment to refinance or mortgage your homestead, it is strongly suggested you file a notice of homestead in the public records and send a copy of such notice to the person or entity holding the judgment. If you are unfamiliar with the language to place in the Notice, it is recommended that you contact an attorney and have them prepare the Notice for you.
To protect your cash from being wiped out in a judgment, it is often suggested to pay down your homestead mortgage (if any) such that your homestead will protect your liquid assets from being taken away from you. However, be careful that you do not run afoul of Florida’s Fraudulent Transfer Act.
There are other methods to exempt your assets from creditors, however, that discussion is outside the scope of this article, but will be addressed in latter editions.
Florida’s homestead asset protection is great, but what if you are not a permanent resident of Florida, can you still receive some (if not all) of the same asset protections from your real property that Florida residents receive from their homestead. The answer is yes within limits. Its called Tenants by the Entirety.
Tenants by the Entirety is a term to designate the manner in which real property is titled and the interest that the parties hold in such property. The only manner that Tenants by the Entirety can be held is between husband and wife. Take a look at the deed to your Florida real property, if it has your name and your spouses name on it with the words “husband and wife” or some variation, it can be presumed that the interest is Tenants by the Entirety. If you are unsure, contact an attorney and ask him or her to check the status of your deed and give you their opinion as to the manner in which the property is held.
As stated before, Tenants by the Entirety assumes a Husband and Wife. Suppose the parties obtain a divorce. When that occurs, the Tenants by Entirety interest terminates and the property converts to tenants in common. Suppose the parties divorce and then remarry each other. In that event, the designation of Tenants by Entirety is not re-established, the parties must re-convey the property to themselves to obtain the status of Tenants by Entirety.
Why is this important? Tenants by the Entirety assumes a unit and not the individual husband or wife. Thus, if the husband obtains a judgment against him, the real property titled in the name of the husband and wife as Tenants by the Entirety is protected from forcibly being sold because the husband’s interest in the property is part of the unit and not him individually. Although this seems like great protection from forced sale, it is very fleeting because at the death of the wife, the property is suddenly held in the sole name of the husband and thus becomes a prime asset to satisfy a judgment against the husband. This can also occur when a divorce judgment is entered because the property is now held in a manner of individual interest.
The only means that a judgment can obligate non-homestead real property held as tenants by the entirety is when both husband and wife are sued jointly. This can occur when both the husband and wife agree to be responsible for each others debts (e.g. credit cards, car purchases on credit or other unsecured debts).
At this point, t should be somewhat obvious that an ideal solution for a married couple might be to maintain separate debts, but joint ownership when it comes to real property.
The means of protecting your property from forced sale to meet the demands of a judgment in Florida can be protected provided you strategically plan how your property will be titled and its status. If you are unsure of what to do with your real property, consider talking to an estate planning attorney or asset protector attorney to give you guidance on this subject.
Next week we’ll take a look at the new homestead valuation changes.