Asset Exemptions in Florida
The law provides that debtors may exempt specific types of property, shielding that property from claims made by their creditors. This article reviews the basic exemptions provided under Florida and Federal law.
Florida Constitutional Exemptions
The Florida Constitution provides two exemptions for property of the debtor, which “shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon, except for the payment of taxes and assessments thereon ….” Fla. Const., Art. X, § 4.
One exemption provided for in the Florida Constitution is for “personal property to the value of one thousand dollars.” Fla. Const., Art. X, § 4(2). However, the most well-known constitutional exemption is for homestead property, i.e., the residence of the debtor/owner and his or her family.
Unlike most States, Florida has no monetary limit on the value of the homestead that can be exempted. However, there is a limit on the size of the property that can be exempted, which depends on where the homestead is located. A homestead located outside a municipality (i.e. a city) can be exempted up to 160 acres. Fla. Const., Art. X, § 4(1). A homestead located inside a municipality can be exempted up to 0.5 acres. Id.
Importantly, the homestead exemption does not apply to taxes on the property. Fla. Const., Art. X, § 4. The homestead exemption also does not apply to mortgages or other voluntary liens on the property. Id. Additionally, the homestead exemption also does not apply to liens by laborers for improvement or repairs to the property, which the debtor contracted for. Id.
Insurance proceeds paid on the loss or destruction of the homestead may also be protected if the proceeds are not commingled with other funds and the seller intends to use the proceeds to purchase another homestead. See Quiroga v. Citizens Prop. Ins. Corp., 34 So. 3d 101, 102 (Fla. 3d DCA 2010) (“In the event a homestead is damaged through fire, wind or flood, the proceeds of any insurance recovery are imbued with the same privilege.”).
Similarly, the proceeds from the sale of homestead may also be protected if the proceeds are not commingled with other funds and the seller intends to use the proceeds to purchase another homestead “within a reasonable time.” See Orange Brevard Plumbing & Heating Co. v. La Croix, 137 So. 2d 201, 206 (Fla. 1962) (holding “the proceeds of a voluntary sale of a homestead to be exempt … just as the homestead itself is exempt if, and only if, the [seller] shows … [a] faith intention prior to and at the time of the sale … to reinvest the proceeds thereof in another homestead within a reasonable time.”).
Florida Statutory Exemptions
Most of the exemptions recognized in Florida were created through legislation. Most of Florida’s statutory exemptions are found in Chapter 222. Some of the most common statutory exemptions include:
Wages
Fla. Stat. § 222.11, provides an exemption for all of the disposable earnings of a head of family that are less than or equal to $750 a week. “Head of family” is defined as “any natural person who is providing more than one-half of the support for a child or other dependent.” Id. at (1)(c). Wages deposited in a bank account may continue to be exempt as wages for a period of months. This exemption is most often used in defense of garnishment actions.
Life Insurance and Annuities
Fla. Stat. § 222.13, provides an exemption for the proceeds of a life insurance policy of any Florida resident, “unless the insurance policy or a valid assignment thereof provides otherwise.” Similarly, Fla. Stat. § 222.14, provides an exemption for the cash surrender values of life insurance policies and the proceeds of annuity contracts issued to Florida residents.
Disability Income Benefits
Fla. Stat. § 222.18, provides an exemption for the recipient of disability income benefits “under any policy or contract of life, health, accident, or other insurance of whatever form.”
Pension Plans
Fla. Stat. § 222.21, provides an exemption for pensions and other retirement plans that have been approved by the IRS, including IRAs and 401(k)s.
Tuition Programs and Health Savings Accounts
Fla. Stat. § 222.22, provides an exemption for (1) qualified tuition programs, including the Florida Prepaid College Trust Fund; (2) Coverdell education savings accounts, also known as an educational IRAs; (3) health savings accounts or medical savings accounts approved by the IRS; and (4) hurricane savings accounts insuring residential property.
Workers’ Compensation
Fla. Stat. § 440.22, provides an exemption for the recipient of benefits due under a workers’ compensation claim.
Unemployment Compensation
Fla. Stat. § 443.051, provides an exemption for the recipient of unemployment compensation.
Other Property
Fla. Stat. § 222.25(1), allows debtors to exempt their “interest, not to exceed $1,000 in value, in a single motor vehicle ….” Fla. Stat. § 222.25(2), allows debtors to exempt their “interest in any professionally prescribed health aids for the debtor or a dependent of the debtor.”
Fla. Stat. § 222.25(3), allows debtors to exempt their Federal income tax refund. However, the exemption does not apply to a debt owed for child support or spousal support. Fla. Stat. § 222.25(4), allows debtors to exempt up to $4,000.00 if they do not have or claim the homestead exemption.
Common Law Exemptions
Florida recognizes the common law exemption for property held as tenants by the entireties by married couples. Property held as a tenancy by the entireties possesses six characteristics: (1) unity of possession (joint ownership and control); (2) unity of interest (the interests in the account must be identical); (3) unity of title (the interests must have originated in the same instrument); (4) unity of time (the interests must have commenced simultaneously); (5) survivorship; and (6) unity of marriage (the parties must be married at the time the property became titled in their joint names). Beal Bank, SSB v. Almand & Assoc., 780 So. 2d 45, 52 (Fla. 2001).
If a married couple holds property as tenants by the entireties, that property is exempt as to a creditor of one of the two spouses. However, the property is not exempt as to a debt incurred by both spouses. See Branch Banking & Tr. Co. v. Ark Dev. Oceanview, LLC, 150 So. 3d 817, 821 (Fla. 4th DCA 2014) (quotation omitted) (“[F]unds owned by a husband and wife as tenants by the entireties are ‘beyond the reach of a creditor of either one of the tenants. Such funds are immune from garnishment except where the debt was incurred by both spouses.’”).
Federal Statutory Exemptions
There are also exemptions that have been created by Federal law. Many of these exemptions are very specific and only apply to certain people. For example, there are several exemptions for wages and benefits due to veterans or active military, for retirement benefits for civil service and railroad employees, and for property belonging to Native Americans.
These are beyond the scope of this article intended to provide a general overview. However, some of the more commonly used Federal exemptions include:
Wages
15 U.S.C. § 1673, provides an exemption for up to 75% of a debtor’s disposable earnings for any workweek. Disposable earnings are the part of earnings remaining after the deduction of any amounts required by law to be withheld, such as taxes or child support. 15 U.S.C. § 1672(b).
Social Security
42 U.S.C. § 407, provides an exemption for Social Security benefits, even after they have been paid to the recipient.
Retirement Accounts
29 U.S.C. § 1056(d)(1), provides an exemption for Employee Retirement Income Security (“ERISA”). ERISA is a federal law that sets minimum standards for most retirement and health plans in private industry and provides protection for individuals in these plans.
Limits on Exemptions
Under certain circumstances, a debtor can be deprived of claiming a particular exemption. As noted, most of Florida’s statutory exemptions are found in Chapter 222. “An exemption … provided by this chapter is not effective if it results from a fraudulent transfer or conveyance ….” Fla. Stat. § 222.29. Under Florida’s Uniform Fraudulent Transfer Act, a transfer made by a debtor is fraudulent as to present and future creditors:
[I]f the debtor made the transfer … (a) With actual intent to hinder, delay, or defraud any creditor of the debtor; or (b) Without receiving a reasonably equivalent value in exchange for the transfer … and the debtor: 1. Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or 2. Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due.
Fla. Stat. § 726.105(1) (emphasis added).
Fla. Stat. § 222.30 outlines the concepts of fraudulent transfer or conversions and invalidates an asset’s exemption if a fraudulent transfer converted the asset to exempt status. Generally, a debtor cannot attempt to transfer property that would otherwise be non-exempt into an exempt asset merely to shield the property from the claims of creditors.
In other words, a debtor can be denied the use of an exemption if a creditor can show that the debtor transferred assets from non-exempt property to exempt property with the actual intent to hinder, delay, or defraud the creditor OR if the transfer caused the debtor to have few remaining assets OR if the debtor knew or should have known that the debt was beyond his or her ability to pay as payments became due at the time the debt was incurred.