Limitation of Asset Exemptions: Activist Judges

It’s important to make sure that your wealth is locked up in exempt assets and that it can be exported to an offshore trust in the event of judicial intervention, so that it lays beyond the reach of unpredictable judges and very bendable court rules.  An example of an exempt asset is a home held under a state homestead exemption.  The purpose of this article is to demonstrate that even rules exempting assets can be bent by judges and even by judges of far away states!

Asset Protection vs. Full Faith and Credit

There is clause in the United States Constitution requiring states to give “full faith and credit” to judgments rendered by judges in other states.  In some cases, that can cause problems for people who believe that they are protected by the laws of their home state.

In Florida, for example, the homestead exemption provides a very strong form of asset protection.  It’s actually the best form of Florida asset protection.  Recently, however, a California judge ordered a widow living in Florida (let’s call her “Elle”)to convey her homesteaded property to a receiver, which caused those of us in the asset protection business to do a double take.

Here’s what happened:

• A man who was the trustee of a trust stole money from the trust and used it to buy a home in California.  After that, he married Elle and eventually widowed her.  Elle had no idea that the home she lived in with her husband had been purchased with fraudulently obtained funds.
• After the death of her husband, Elle sold the California home and used the proceeds to buy a homestead in Florida, in which she lived.
• Eventually, the beneficiaries of the trust discovered that Elle’s husband had stolen from the trust and filed suit.  In short, they went after Elle’s Florida homestead.
• A California court ruled in favor of the trust beneficiaries and ordered Elle to sell her house.

Interestingly enough, the Florida courts upheld and enforced the judgement of California, reasoning that fraudulently obtained funds cannot be used to establish a homestead . . . apparently under any circumstances.

In terms of protecting her home, there’s not much Elle could have done differently if she wanted to be a home owner.  Because she was unaware that the funds she used to buy a house in Florida were fraudulently obtained, there was no reason for her to attempt to protect those funds.  But this case illustrates a point that we stress very often: Judges are unpredictable.  In light of that fact, the only certainty you can have is the certainty that comes from knowing your wealth can be placed beyond the reach of the U.S. legal system and into an offshore asset protection trust.

If you’d like to read the actual case discussed in this article,  look up Florida 5th DCA Case  No. 09-3054, a/k/a the Hirchirt case.