The techniques described here are means of titling or transferring property to make it immune from creditors’ claims against the owner personally.  Effective use of these techniques is at all time subject to the exceptions for fraudulent transfers and conversions.  The following discussion is a summary only.  If you would like more information about these creditor exemptions or asset protection methods, please contact us.

1.  Own Property as Tenants by the Entireties.  Property that is owned by a husband and wife “as tenants by the entireties” is generally immune from claims against one of the spouses individually.  Such property is considered as completely owned by both husband and wife together, and only creditors of both husband and wife can seek to have their debts satisfied from such property.  Property that is held jointly by a husband and wife will generally be considered as held by the entireties, if so intended by the spouses, but it is better to clearly indicate this intention by titling the property “[name of husband] and [name of wife] as tenants by the entireties” or “as TBE.”

2.  Own Property through Limited Liability Entities.   Interests in a Florida limited liability entity (e.g., limited partnership, limited liability partnership, limited liability limited partnership, or limited liability company) generally cannot be directly seized by the creditors of the limited partner, as a result of the so-called “charging order protection.”  A creditor can obtain a charging order or lien against the limited entity interest, which gives the creditor the right to receive any distributions made with respect to the liened interest.  However, the creditor has no say in whether distributions on the liened interest are made, since that decision is generally made within the discretion of the general partner, partners, manager or members (as determined by the entity’s organizational documents or Florida law).  Moreover, a creditor that obtains a lien on a limited entity interest will be required to pay income taxes upon all partnership income attributable to the interest, even if no distributions are made.  Update:  The Florida Supreme Court’s decision in Olmstead v. FTC renders the charging order protection ineffective for single-member Florida LLCs, and calls into question the protection’s effectiveness for all LLCs in Florida.  More to come on this developing topic.

3.  Transfer Title into Spouse’s Name.  Property properly held in the name of one spouse is not subject to the claims of creditors against the other spouse. 

4.  Make Gifts of Property to Family Members.  Property that is properly and completely given to another person is not subject to the claims of creditors against the donor.

5.  Protect Property for Family Members through Irrevocable Spendthrift Trusts.  Property that is owned in an irrevocable spendthrift trust is generally protected from the creditors of both the grantor and the beneficiary.  An irrevocable trust is a trust for which the grantor of the trust does not retain the power to amend or revoke the trust or withdraw the principal of the trust.  The grantor of an irrevocable trust no longer has any interest in the trust property, making such property outside the reach of the grantor’s creditors.  If an irrevocable trust is also a spendthrift trust, the trust property will also be protected from the beneficiaries’ creditors.  A spendthrift trust generally prohibits a beneficiary from transferring away his or her interest in the trust and prohibits a creditor from attaching the beneficiaries’ interest in the trust, unless the trustee allows.  However, there are instances in which a creditor can attach a beneficiary’s interest in a spendthrift trust, including where the creditor has provided a support service to the beneficiary or with regard to the beneficiary’s obligation to support a former spouse or children.  Note that a trust grantor cannot protect property from his or her own creditors by creating a spendthrift trust under Florida law for his or her own benefit (a so-called self-settled spendthrift trust).

6.  Transfer Property to Domestic Asset Protection Trusts.  A number of states (including Alaska and Delaware) have attempted to overcome the general prohibition against self-settled spendthrift trusts noted above.  Trusts created and operating in accordance with the specific laws of those states are intended to protect property transferred to the trusts (which are irrevocable) from the grantors’ creditors, even though the grantor of such a trust is also the beneficiary.  Domestic asset protection trusts have not been tested in Florida courts, and therefore a Florida resident should consider their use cautiously. 

7.  Transfer Property to Off-Shore Trusts.  It is often difficult for creditors to reach property that is transferred to an off-shore trust, which is typically formed in a country with particularly debtor-friendly laws.  In addition, the laws of many off-shore countries permit the use of self-settled spendthrift trusts.  A detailed discussion about the use of off-shore trusts is beyond the scope of this memorandum.