What Assets Are Exempt from Creditors in Florida?

Florida exemptions from creditors include certain classes of property that Florida law makes unavailable from collection of monetary judgments. Florida’s statutory exemptions are available only to people who permanently reside in Florida. The key assets that are exempt by Florida statutes are:

• Head of household wages
• Annuities and life insurance proceeds and cash surrender value
• Homestead (up to 1/2 acre in a city and 160 acres in the county)
• Retirement accounts, including Roth IRA, IRA, 401k
• Disability income
• Prepaid college funding
• Social security
• Miscellaneous exemptions

Head of Household Exemption from Wage Garnishment

Wage garnishment can be an effective collection tool. One of the first things a creditor will do after obtaining a money judgment is serve a writ of wage garnishment on the debtor’s employer. Florida permits a continuing wage garnishment which means that a single writ of wage garnishment applies to the debtor’s future wages until the judgment is paid or until employment terminates.

Florida statutes do not permit wage garnishment for certain debtors. Section 222.11 of Florida Statutes states that a creditor may not garnish earnings that include wages, salary, commissions, and bonuses payable to a debtor who is “head of household.” A “head of household” is someone who provides the primary financial support for a family dependent. Dependents include children or parents. The dependent may live in a separate residence and may even earn part of their own support.

A creditor may not garnish a head of household’s earnings even after they are deposited into a bank account (provided they are traceable and identifiable). Exempt earnings remain protected in a bank account for up to six months.

The definitions of dependents for purposes of the head of household wage garnishment exemption should not be confused with rules regarding income tax dependents. You may support someone for purposes of establishing head of household exemption status even if you do not claim that person as a tax dependent.

Waiver of Head of Household Exemption

A debtor can waive his wage exemption so long as the waiver is informed and done in writing. Many lenders include head of household exemption waivers inside loan documents. A debtor may be surprised when a creditor garnishes wages even though the debtor is a head of household when the debtor inadvertently signed a waiver in credit documents.

The Bankruptcy Code provides a remedy to save debtors who have waived head of household protection in loan documents. Section 522 (e) of the Code invalidates an otherwise effective waiver signed by the debtor in favor of an unsecured creditor. For example, money that a debtor has in financial accounts traceable to head of household wages may be exempt in bankruptcy notwithstanding the debtor’s waiver of the exemption in loan documents.

Head of Household Exemption for Self-Employed Workers

Business owners may not be able to take advantage of the head of household exemption. There are court cases stating that “salary” paid to the sole owner of an LLC or corporation is not “earnings” for purposes of the garnishment exemption. These courts characterized the business owner’s earnings as profit distributions instead of salary when the sole owner controls the amount and timing of the payments.

In these cases, salary paid to the owner debtor fluctuated based on business cash flow, and there was no written employment agreement. Business owners need to carefully organize their business and compensation structure to qualify for the garnishment exemption.

Florida Exemption Statute

The main exemption statute in Florida is Chapter 222, entitled “Method of Setting Apart Homestead and Exemptions.”

The statute has various sections, each pertaining to a different category of statutory exemptions from creditors.

Some of the most important statutory exemptions in Florida Statute 222 include:

• Section 222.01: Designation of homestead by owner before levy (used to sell or refinance a homestead even when a judgment has been recorded)
• Section 222.11: Exemption of wages from garnishment (used to defend against a wage garnishment)
• Section 222.14: Exemption of cash surrender value of life insurance policies and annuity contracts from legal process (used to protect cash value of life insurance and annuities)
• Section 222.21: Exemption of pension money and certain tax-exempt funds or accounts from legal process (used to exempt retirement accounts, such as 401k, IRA, Roth IRA, and inherited IRAs)

Exemption of Life Insurance and Annuity Proceeds

The exemption of life insurance cash value and the annuity exemption continues even after the debtor has received money from the life insurance policy or the annuity. Insurance and annuity payments remain protected after they are deposited in a financial account if the funds can be accurately traced back to the exempt annuity or insurance policy. These do not have to be segregated in a separate account so long as the money in the account is traceable to the annuity or insurance policy.

The cash value of life insurance may not be exempt if invested in another asset. Suppose, for example, that someone purchases a CD with proceeds from a cash value life insurance policy. The cash value of life insurance is exempt under Florida Statute 222.14. The statute exempts proceeds of life insurance and annuity contracts in any form. The issue would be whether the funds remain exempt after conversion of the cash value of life insurance to a certificate of deposit.

Courts have liberally applied the life insurance and annuity exemption to include cash proceeds after being deposited into a bank account. One case specifically exempted a CD purchased with life insurance proceeds.

The courts will probably limit the extent of conversion of proceeds into another form of asset. There is relatively small difference between life insurance cash deposited in a bank account and a CD purchased at the same bank. If the same person were to use the insurance cash to invest in a rental property or purchase securities at a different financial institution, a court may find that the extent of conversion changed the exempt nature of the insurance money.

Exemption of Pensions and IRAs

Pensions, 401k plans, IRAs, and other tax deferred retirement assets are protected from creditors in Florida pursuant to Section 222.21 of Florida Statutes. All forms of tax deferred retirement plans are protected. The statutory exemption specifically includes pension plans designated for teachers, county officers and employees, state officers and employees, police officers, and firefighters.

Individuals typically hold a substantial portion of their financial wealth within IRA accounts and other tax qualified retirement plans. There is strong public policy in favor of protecting retirement plans from creditors. The exemption protects money the debtor needs to support themselves and their non-debtor family members during retirement. Without protected retirement funds, a debtor and his family could become dependent upon state government subsidy and care.

Defined Benefit Plans

A defined benefit plan can be protected even with a sole owner participant. The issue is that a defined benefit plan with a sole owner participant may not be ERISA compliant plan. (ERISA is short for Employee Retirement Income Security Act). The question, therefore, is whether a retirement plan can still be exempt in Florida even though it is not ERISA compliant.

Previous versions of the relevant Florida statute disallowed such an exemption because the plan would not have been ERISA compliant.

However, the Florida legislature amended the statute to exempt retirement plans even if they are not ERISA compliant.

In 2009, the U.S. Court of Appeals for the 11th Circuit confirmed that Florida’s amended exemption statute exempts these plans. The case is In re baker, 590 F.3d 1261 (11th Cir. 2009).

Inherited IRAs and Roll-over IRAs

In past years, there was a legal issue as to whether Florida’s IRA exemption extended to rollover IRAs and inherited IRAs. The Florida legislature resolved the issue in 2011. A 2011 amendment to Florida Statute 222.21 expanded the definition of an exempt IRA to include both rollover and inherited IRA accounts. Florida’s statutory protection of inherited IRAs takes precedence over a U.S. Supreme Court ruling that inherited IRAs are not exempt under bankruptcy law.

Disability Income

Disability income benefits under any disability insurance policy are exempt from collection under Section 222.18 of the Florida Statute. The exemption includes health, life, and accident disability insurance proceeds.

Miscellaneous Statutory Exemptions

Florida statutes provide several specific creditor exemptions such as exemptions of professionally prescribed health aids, hurricane savings accounts (with restrictions), medical savings accounts, and unemployment benefits.

Alimony Payable to Judgment Debtor

A divorced spouse may depend on court ordered alimony for their support. A creditor with a judgment against the alimony recipient cannot garnish the alimony payments payable by the former spouse. There is no statutory exemption for alimony payments. Alimony is not considered wages that could be exempted from garnishment as payments from or to a head of household. Nevertheless, Florida courts have denied judgment creditors the ability to garnish alimony payments payable to a debtor spouse as a matter of public policy. Courts have protected alimony from garnishment to provide financial support for the recipient spouse and their dependents.

Using Florida Exemptions in Other States

When a creditor obtains a judgment in another state against a Florida resident, the creditor may enforce the judgment collection through the foreign court that issued the judgment. Florida residents may not export their Florida exemption to other state courts. Florida residents cannot use Florida exemptions to protect personal property located in states other than Florida.

If you work in another state, you are subject to the wage garnishment laws of the state where the work is performed. Furthermore, if a Florida resident owns or maintains real or personal property outside of Florida, the debtor’s protection of that property is determined by the exemption laws of the state where the properties are located.

Where Are Debtor’s Assets Located?

It is important to determine where certain assets are legally located in order to understand the exemption and collection law applicable to the asset.

The location of real property is obvious. But some debtors effectively relocate foreign real estate by owning the property in an LLC. The debtors then hold the LLC interests as personal property in Florida.

In this manner, the debtor owns moveable LLC interests in Florida, subject to Florida laws, rather than owning the underlying real property situated outside Florida.

Asset location is an issue primarily when debtors plan to protect financial accounts. Most financial institutions provide that their customers’ financial accounts are situated at the branch office where the account is maintained or in the state where the customer resides when the account was opened.

For example, if a Georgia resident opened an IRA account at a Georgia branch of a national financial institution, and the debtor then moved to Florida, Florida exemption laws might not apply to the IRA account. The account may instead be anchored at the Georgia branch where it was opened. The new Florida resident is better protected if he moves his existing financial accounts to a Florida branch of the same financial institution or to a new institution with Florida offices.

Wages, salary, and commissions are in the state where the employee performed the work. A judgment creditor may garnish a Florida resident’s earnings in the court of any state where the Florida resident earned the money. A judge in the foreign state would not apply Florida’s head of household earnings exemption to a writ of wage garnishment. Only earnings payable in Florida for work performed in Florida are protected from wage garnishment when the debtor is head of household.

Exemption of Child Support Payments from Garnishment

Some clients want to know if child support payments are exempt from garnishment.

For example, suppose a mother receives child support payments from her ex-spouse. The mother does not work and does not have any separate income. The mother uses some of the child support payments to support the children that live with her. The mother saves the remaining amount of child support payments in her personal bank account.

The mother has a monetary judgment against her. Can the judgment creditor garnish the funds in the bank account?

In that situation, the funds are likely exempt. The head of household exemption exempts money earned from someone who is head of the family. The exemption applies to funds held in a bank account for up to six months.

In the above example, the money was earned by the head of household, who is the ex-spouse and was subsequently deposited into a bank account. Even though the mother is not the wage-earner, she can still probably claim that the funds are exempt. Further, this result matches the purpose of the law, which is to not leave the family, and in this case the children, destitute and reliant on the state.

Voluntary Waiver of Florida Exemptions

Florida law permits debtors to waive in favor of a particular creditor any of the asset exemptions provided by Florida Statutes. Many lenders include waiver provisions in their standard loan documents. Some debtors inadvertently waive Florida asset protections by signing documents during a loan closing that include exemption waivers. To be effective and enforceable, exemption waivers must be conspicuous and not hidden from reasonable discovery in fine print legalize. Borrowers should watch out for exemption waivers in loan documents and carefully consider whether the loan contract warrants waiver of their asset exemptions.

Common Questions About Exemptions