May 2017 District Court of Appeals decision impacts Alimony creditors – a blend of family law and estate planning law

4th DCA Recognizes Homestead Exception for Alimony Creditors

The Florida Constitution provides powerful homestead protection against creditors.  Generally, only three types of super-creditors can breach this protection – (1) government entities with a tax lien or assessment on the property; (2) banks or other lenders with a mortgage originating from the purchase of the property; and (3) creditors with liens originating from work or repair performed on the property.

However, a recent decision by the District Court of Appeal for the 4th District confirmed a “long recognized” fourth category of super-creditors – alimony creditors.  The facts of this case are as follows:  Robert Spector (“Husband”) and Renee Spector (“Former Wife”) divorced in 1996, and agreed in a post-nuptial agreement that Husband would (1) pay Former Wife $5,000 per month in alimony until his or her death, or until she remarried; (2) transfer to Former Wife the title and interest in their marital home; and (3) maintain a $750,000.00 life insurance policy for Former Wife’s benefit.  Subsequently, Husband was held in civil contempt for “willful and deliberate failure to comply with the alimony provisions” of the post-nuptial agreement and was also denied a bankruptcy petition as alimony arrearages were not subject to bankruptcy discharge.

Subsequently, Husband married Ellen Spector (“New Wife”) and transferred title to the homestead property in question to himself and New Wife as tenants-in-common.  Husband also transferred title in the life insurance to New Wife, who then borrowed against the entire value of the $200,000.00 policy, and candidly testified that the purpose of the transfer was to shield the money from Former Wife.  Upon learning of this, Former Wife impleaded New Wife and the insurance company and moved for proceedings supplementary to execution of the former judgment against Husband awarding Former Wife owed alimony and attorneys’ fees.

The trial court conducted an evidentiary hearing and held that both the life insurance policy and the marital home were absolutely protected from creditors prior to the transfers; and, therefore, their transfer would not have any effect on the creditors.  The trial court concluded that “as a matter of law, the transfer was not fraudulent.”  As a result, Former Wife could not reach either the insurance proceeds or the homestead property, and appealed accordingly.

The appellate court agreed with Former Wife and expressly acknowledged a fourth exception for alimony creditors to otherwise robust homestead protection.  The court reasoned that, while the homestead protection is to be construed and applied in a liberal and beneficent spirit, it is not meant to serve as an instrument of fraud or imposition upon creditors.  In the marital context, the court quoted a Florida Supreme Court case stating that the homestead exemption cannot “be construed to enable the husband to claim its benefit against the very persons to whom he owes the obligation of support and maintenance, and that to construe the statute otherwise, would, at least in part, defeat its avowed object.”

As to the marital home, the court held that forced sale of homestead property is permitted when the former spouse claiming the homestead protection acted egregiously, reprehensibly or fraudulently.  In such cases, the courts are permitted to foreclose a lien on the property.  As to the insurance policy, the court noted that it enjoys merely a statutory, not constitutional, protection and that, while life insurance proceeds are generally exempt from creditor claims, the exemptions clearly do not apply when they are being used for a fraudulent purpose.

Based upon these exceptions, the 4th DCA found that the trial court erred in finding that the marital home and the life insurance policy could not be touched under any circumstances.  The appellate court declined to make a finding of fact and instead remanded the case to the circuit court to determine whether Husband acted either egregiously, reprehensibly or fraudulently, so as to justify a forced sale of the homestead and the insurance policy.

While Florida’s homestead protection enjoys strong protection, it is not absolute.  The foregoing provides yet another example of why it is crucial to consult experienced and up-to-date attorneys when making estate planning decisions.  If you or your loved ones seek advice on matters regarding your homestead property, please do not hesitate to contact the lawyers at Chepenik Trushin LLP, who are experienced with 23 years and willing to help.