April 1, 2009

Ruth Madoff, Florida Welcomes You...
Not So Fast

Ruthie, for decades you have lived off the fat of land…or, rather, the fat of the fraudulent activity of your husband, Bernie Madoff. You know, there was that little matter of your husband’s pillaging and decimating the financial nest eggs of his investors including many residents of our Sunshine State as well as major charitable organizations and endowment funds.  Now you have the audacity to rub salt in the wounds of those your wonderful spouse destroyed, by attempting to protect your likely feloniously acquired $9.4 million Palm Beach mansion under our favorable Florida Homestead laws.

Ruthie, you follow a long line of debtors, criminals, carpetbaggers, rascals, and flim-flam men/women, who have used our favorable debtor protection laws to shelter assets from creditors…most notoriously, O.J. Simpson. However, Ruthie, due to recent changes in our bankruptcy laws and the nature of your husband’s crimes, it is questionable as to whether your last minute chicanery will be successful in protecting your abode.

MORE QUESTIONS THAN ANSWERS
At the time of my writing Ruth Madoff has not been charged with any crime. However, considering her own activities immediately preceding Bernie’s arrest, i.e. withdrawing millions from the business accounts of London and New York operations and the filing in Florida for homestead protection on September 18, 2008, it is a good bet that things will change for Ruthie soon.

In any case, it is debatable whether or not  her ruse will work under our current legal framework. While residency requirements were instituted with our new bankruptcy statutes in 2005 (up to 1,215 days for full unlimited homestead protection), Madoff has owned the home since 1994. However, it was not her primary residence and she only declared the Palm Beach home as her homestead recently. In fact, she was awarded the homestead exemption for the first time on January 18, 2009 after giving up her exemption for her home in New York City. Case law is not entirely clear on when official residency would begin in such a case. The property tax exemption kicks in with the designation, but the protective status from debtors is not a given.

In addition, even if Ruthie is protected under Florida homestead law, the Feds will very likely attempt to use their power to override our statutes using federal RICO or fraud statutes to seize her home. In fact, they have already listed the Florida home amongst a number of assets that they will attempt to take back from Ruthie.

Finally, there is an interesting, but very small, technical point to be made: Florida’s unlimited homestead laws protect up to ½ acre of property located in a municipality. Property records indicate that Madoff owns .54% of an acre of land. So at a minimum, Ruthie may have to give up her vegetable garden.

FLORIDA PROTECTION LAWS POWERFUL FOR NON-CRIMINALS
For our Florida clients and readership who seek to protect their hard earned assets from the normal wear and tear of daily life and the ups and downs of an uncertain economy, you continue to reside in one of the best states in the union. In addition to homestead protection, the state  provides a highly favorable statutory framework for the protection of assets such as IRA’s, college savings plans, insurances, qualified pension plans etc., as well as excellent protective business entity alternatives i.e., LLC’s, LLLP’s.

And in answer to the question on so many of our clients minds these days… Yes, you can protect your good assets from your bad.

Additional emphasis is now being placed on ensuring that good assets are protected from potential liabilities that can arise from upside down real-estate investments, or   other problematic assets and outside investments. We liken this to recognizing a virus and quarantining it, in order to keep the non-infected safe.

In Florida, asset protection planning can range from the most basic tactics to the most sophisticated and nearly impossible to penetrate, offshore options. In general, current Florida statutes allow for a 3-pronged approach to optimizing your asset protection:

1. PROTECTION OF YOUR BUSINESS INTERESTS-all of your business ownership and voting interests, including buildings, equipment, bank and investment accounts, and other related entities.
2. PROTECTION OF YOUR PERSONAL ASSETS/FAMILY WEALTH-including your residences, vacation homes, investment properties, rental properties, stocks, bonds, bank accounts, expectancies and all assets of value.
3. PROTECTION OF YOUR CHILDREN’S AND GRANDCHILDREN’S ASSETS-including protection from bad marriages, your or their ex-spouses, and most of all, protecting your children and grandchildren from themselves.

CONCLUSION
As long as Florida keeps it’s favorable debtor laws, we can expect notorious criminals and swindlers to continue to attempt to protect their ill-begotten wealth by seeking residency in our state. However, there is a sunnier side to all of this. Florida will always remain a desirable location for law-abiding citizens, appreciative of not only our warm climate, but also of the ability to protect their earnings from creditors and nuisance lawsuits. This will continue to be a stabilizing ingredient for the Florida real estate industry. All legitimate Florida residents and taxpayers owe it to their families and to themselves to be certain they are taking advantage of our statutes and taking appropriate steps to protect their own hard earned assets.

Austin A. Frye, MBA, JD, CFP®

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