Is Investing Homestead Sale Proceeds Okay?
Florida Constitution provides protection from forced sale to homestead property from most creditors. Art. X, § 4, Fla. Const. The protection covers not only the physical homestead property but also the proceeds from the sale of the homestead, provided the proceeds are reinvested in another homestead property. In a scenario where you invest the homestead sale money in securities and then buy another homestead with it, does the money retain homestead protection?
The Florida Supreme Court answered this question in the affirmative in a recent 2016 decision JBK Assocs. v. Sill Bros., 191 So. 3d 879 (Fla. 2016). In that case, JBK Associates, Inc. (“JBK”) obtained a final judgment against Mr. Sill for $740,487.22. Mr. Sill had consequently opened a brokerage account with Wels Fargo and deposited the sale proceeds from the marital home of Mr. Sill and his ex-wife. The account was titled “FL Homestead Account” and was split into three sub-accounts, one containing cash and two containing mutual funds and unit investment trusts.
When JBK tried to collect on the judgment from Mr. Sill’s Wells Fargo account, Mr. Sill objected on the basis that the funds were protected from creditors under homestead exemption. JBK argued that Mr. Sill lost the homestead protection because he purchased securities with a portion of the money. Both the trial court and the Fourth District Court of Appeal rejected JBK’s argument.
The Florida Supreme Court affirmed. First, the Florida Supreme Court noted the liberal construction of homestead protection in Florida. Second, it reiterated the requirements for the sale proceeds to retain the same homestead protection as the original homestead set out in Orange Brevard Plumbing & Heating Co. v. La Croix, 137 So. 2d 201 (Fla. 1962): (1) there must be a good faith intention, prior to and at the time of the sale, to reinvest the proceeds in another homestead within a reasonable time; (2) the funds must not be commingled with other monies; and (3) the proceeds must be kept separate and apart and held for the sole purpose of acquiring another home.
Having found that Mr. Sill did not violate the requirements from Orange Brevard, the Florida Supreme Court emphasized several important factors. First, Mr. Sill placed the sale proceeds into a separate account designated as a “homestead account.” In doing so, Mr. Sill manifested his intent to buy a new homestead and also not comingled the funds with other monies. Second, the Florida Supreme Court determined that the fact Mr. Sill placed the exempt proceeds in a safe investment account did not by itself defeat his intention to re-invest it into a new homestead. As the Florida Supreme Court pointed out, “[i]n today’s economic climate, […] traditional bank accounts do not garner any significant amount of interest earnings.” Lastly, as a matter of public policy, the Florida Supreme Court noted that any other decision would require judgment debtors to place homestead sale proceeds in non-interest-earning mediums only—perhaps an escrow account or even a jar under one’s bed.
While the investment in the above case was deemed sufficiently safe to retain homestead protection, it is not automatic. To make sure that your homestead money is protected, it is very important to consult an experienced attorney. You should not hesitate to contact the attorneys of Chepenik Trushin LLP, who are ready, willing, and able to assist with your estate planning and probate litigation needs.