Sometimes basic estate planning is not enough. Three commonly used planning agreements used in conjunction with the typical estate planning tools are prenuptial, postnuptial and cohabitation agreements. A prenuptial agreement (“prenup” for short) is a written contract created by two people before they are married. The couple generally settles, in advance, financial matters in the event of death or divorce. “Lifestyle” or non-financial topics also may be included. The contract overrides and preempts state, family and private laws that otherwise would apply. An agreement made during marriage, rather than before, is known as a postnuptial agreement (“postnup” for short). A cohabitation agreement (“cohab” for short) is a private contract between cohabitants, which typically tries to establish contractually for the parties the rights and obligations that married people obtain by custom, statute, and agreement.

Couples with a prenup, postnup or cohab should review them every few years. After 15 years of marriage or cohabitation, for example, you might want to consider giving your spouse
(or significant other) more than what was provided for in the original agreement. Typically, these agreements are written defensively and after a certain number of years couples may want to provide greater benefits to one another. One option for softening the blow of a prenup, postnup or cohab is to incorporate a “sunset clause,” which specifies a time at which the contract would expire – for example, after 20 years of marriage or cohabitation.

If you would like to review your existing agreement or think such an agreement might be beneficial to you, please contact us at Info@Law-Morris.com.

Question
Dear Mr. Bloshinsky,

Is my homestead residence protected from creditors if I transfer it to my revocable trust?

Sincerely,
Confused

Answer
Dear Confused:

On July 25, 2006, U.S. Bankruptcy Judge Michael G. Williamson issued an Order in In re Merry Alexander holding that an individual in debt is exempt from being forced to sell his or her homestead personal residence or have a lien placed against it by judgment creditors, even when legal title to the residence is held in a revocable inter vivos trust (RIVT) established by the individual.

Judge Williamson’s holding is contrary to the controversial 2001 ruling made by U.S. Bankruptcy Judge George L. Proctor in In re Bosonetto, an earlier case involving this issue. Many legal experts were critical of Judge Proctor’s interpretation of Florida law as it applied in the bankruptcy proceeding when he ruled Florida homestead was not protected once transferred to a RIVT.

Alexander is the first reported bankruptcy case in Florida, since the Bosonetto ruling, directly relating to the creditor protection afforded a homestead placed in a RIVT, typically for estate planning purposes.

It is important to note that the holding in Alexander does not overrule Bosonetto; Judge Williamson simply declined to follow the ruling made in Bosonetto, and issued a well reasoned Order supported by Florida law. Therefore, unless there is an appeal of Judge Williamson’s ruling in Alexander, in the Middle District of Florida two conflicting bankruptcy court decisions on the same issue currently stand.

It will be interesting to see whether other judges in Florida will embrace the reasoning of Judge Williamson in future cases which address the issue of whether homestead property being held in a RIVT are still protected from creditors of the grantor of the RIVT.

We can help you with any questions you may have about how to properly title your homestead in view of the uncertainty in the courts. Send us an email to Info@Law-Morris.com with "Homestead" in the subject line.

Best Regards,

Gregory Bloshinsky, Esq.

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This publication is intended for general information purposes only. It is not intended to constitute individual legal advice to any specific client.