Florida Supreme Court Clarifies Homestead Creditor Protection Rights

Dana Gentry - Attorney

Dana Carlson Gentry, Esq., Board Certified in Wills, Trusts & Estates

Revising an estate plan after a couple’s divorce can present numerous challenges, especially where one of the individuals has outstanding debts unrelated to mortgages or liens which directly encumber the homestead property. The Florida Supreme Court has provided recent additional guidance relative to the preservation of homestead protection from such creditors.

In JBK Associates, Inc. v. Sill Brothers, Inc. 41 FLW S189 (Case No. SC15-977, April 28, 2016),  the former homestead of the couple was sold as part of the divorce and  the former husband placed his share of the proceeds in a separate account at a brokerage firm which he designated as “homestead account”.  These proceeds were segregated from the former husband’s other assets. Before purchasing a new homestead, he authorized his broker to invest in mutual funds and stocks in order to increase the earnings in the account. Although the Court did not say when, the former husband apparently used or attempted to use the proceeds to purchase a new homestead residence for himself. In the meantime a judgment creditor of the former husband had obtained a Writ of Garnishment against the account arguing that the creation of the account and subsequent investment in mutual funds and stocks divested the proceeds of any homestead protection. The former husband challenged the Writ of Garnishment.

In reviewing the Florida Constitution and the case law on the matter, the Florida Supreme Court stated that the former husband manifested his intent to reinvest the sales proceeds into a new homestead by titling the account as “homestead account”.  The Court ruled that such investment was proper and that the judgment creditor could not access the proceeds of the investment account or challenge the way in which the former husband invested the assets, since the former husband did in fact purchase a new homestead within “a reasonable period of time.”  The Court opinion does not disclose how much of the proceeds were used to purchase a new homestead, what amount of time constitutes a reasonable period of time, or whether the new homestead purchase was delayed in any way due to the Writ of Garnishment.

Thus, in the unfortunate circumstance of a divorce where the marital home is sold, each former spouse should segregate any proceeds of the sale received into an account entitled “homestead account” prior to purchasing a new homestead.  In so doing, the above case suggests that a former spouse can then invest the “homestead account” funds in assets other than a simple non-interest bearing bank checking account or savings account earning minimal interest without compromising the protected nature of such funds.

If you have other questions about the legal aspects of homestead creditor protection rights, please call any of our estate planning lawyers at 941-748-0100 and we will be glad to assist you.  To contact Dana Carlson Gentry, Board Certified in Wills, Trusts and Estates, email her at dgentry@blalockwalters.com.