Florida Homestead Exemption

Take it from an asset protection attorney: There is no better form of asset protection than the Florida homestead exemption (though Texas is pretty good too). Article X, Section 4 of The Florida Constitution states that homestead property in Florida is “exempt from forced sale under process of any court.” This means that judgment creditors cannot levy and execute on property that falls within the definition of a Florida homestead. The homestead exemption is the highest form of asset protection because it is embodied in Florida’s Constitution and statutes, and it has been rigorously and consistently upheld by the courts.

Property Qualifying for The Florida Homestead Exemption

The Florida Constitution grants homestead protection to a personal residence on up to one-half acre within a municipality (i.e. within the city limits), including all improvements (i.e. buildings) on the land, or a personal residence on up to 160 contiguous acres in any county, including all improvements. The courts have liberally construed these provisions and have extended homestead protection to condominiums, manufactured homes, and mobile homes, which seems to imply that homestead protection is available for any and all fixtures to real property that qualifies for the exemption.

In order to qualify for the exemption, the owner of the property must be a Florida resident, and the homestead estate must be his or her primary residence. Property that is not occupied by the owner is not protected under Florida’s homestead laws. Second homes and investment properties don’t qualify for protection either. Homesteaded property must be owned by a “natural person,” so property titled in the name of a corporation, a limited liability company, a partnership, or any form of irrevocable trust doesn’t qualify. There is some Florida case law holding that property held in a revocable living trust may qualify for homestead protection. Likewise, property held in a Florida land trust may qualify as a Florida homestead.

Proceeds from the Sale of a Florida Homestead

Interestingly, proceeds from the sale of Florida homestead are also protected to the extent that they are intended to be used for the purchase of a new Florida homestead within a reasonable time. In order to claim this protection, the proceeds from the sale of the homestead must not be commingled with other funds. Rather, they must remain separate (ideally in an account designated as “homestead funds”) until they are used to purchase a new Florida property.

When Does Homestead Protection Attach?

Homestead protection attaches immediately upon the first day of occupancy of a property that is intended to be a permanent Florida homestead. The intent of the owner/occupier of the home is by far the most important factor in determining whether a property is a qualified Florida homestead. There is no formal requirement that any forms or other paperwork be filed, though you can file a “declaration of domicile” with a local court in your county. Again, ownership, occupancy, and intent are the controlling factors, so there is no need to file any paperwork in order to have homestead protection (though some paperwork is required if you want the homestead tax exemption — see below).

Extent of Homestead Asset Protection

The Florida homestead exemption is unlimited. Whether your homestead is worth $100,000 or $10 million, it is protected against the claims of creditors. Thus, the entire value of large estate homes and farms can be protected under Florida’s homestead laws. The homestead even trumps fraudulent transfer laws to some extent. The Florida Supreme Court has held that it is permissible to use non-exempt, unprotected assets to purchase a homestead or reduce the mortgage held on a homestead, even though the transfer was clearly made to place assets beyond the reach of existing creditors. Of course, there are exceptions to this rule. For example, assets obtained through criminal activity or through fraud and deceit cannot be protected by placing them into a Florida homestead.

Exceptions to Florida’s Homestead Exemption

The homestead exemption will not protect your property from tax liens, pre-existing liens (e.g. homeowner association or condominium association fees), mortgages, or mechanic’s liens (e.g. the cost of materials and labor used by a contractor to improve or repair the homestead property).

In addition, a pre-existing civil judgement that is recorded in the same county as a homestead before you occupied the property will take precedence. For example, if a civil judgment is recorded against you in Walton County and, after the judgment is recorded, you buy and occupy a residence in Walton County, you will not be protected. The prior judgment will take priority over your claim of homestead in that scenario, so it would be wise to buy and occupy a homestead in another county.

Joint ownership of property with a person who does not reside on the property can also jeopardize homestead property. For example, if your sister owns half of a home but does not reside in that home with you, your sister’s one-half interest is not protected by the Florida homestead exemption and can, therefore, be sold to satisfy a judgment against her. In other words, a judgment creditor of a non-resident co-owner of property can force the property to be sold at auction, so it is smart to make sure that homesteaded property is occupied by all owners of the property.

Florida Homestead Exemption in Bankruptcy

Unfortunately, the Supremacy Clause of the U.S. Constitution trumps Florida’s homestead protection. For that reason, the federal Bankruptcy law passed in 2005 has limited Florida’s homestead exemption in the context of bankruptcy. Note: the federal bankruptcy law has no application to the unlimited protections offered by Florida homestead laws outside of bankruptcy proceedings.

In the context of bankruptcy, however, homestead protection is limited to about $145,000 for single individuals and about $290,000 for joint bankruptcy debtors. These low limits don’t apply if a debtor has claimed a Florida homestead for at least 40 consecutive months prior to filing for bankruptcy. The bankruptcy law is simply aimed at preventing people from moving to states like Florida and Texas to take advantage of unlimited homestead exemptions immediately prior to filing for bankruptcy. The bankruptcy law also has a 10-year “look back” provision allowing the bankruptcy court to “undo” any fishy contributions made to a homestead within ten years of filing for bankruptcy.

Homestead Tax Exemption is Different

Don’t confuse the asset protection benefits of the Florida homestead exemption with the tax benefits of the Florida homestead exemption. In order to qualify for the tax exemption, certain paperwork has to be filed with the tax appraiser in your county, and you must occupy the property on January 1st in the year in which you’re seeking the tax benefit. However, these requirements have no bearing on the asset protection features of the homestead exemption.

Limitations on Sale and Ability to Will Homestead

Homestead protection does have a cost. For one, a homestead cannot be sold without the consent of both spouses. That’s true even if the homestead is titled in only one person’s name and even if it was bought entirely with money that is or was separate property. Upon the death of the owner of a homestead, a surviving spouse is entitled to a life estate on the property, and the remainder interest (e.g. free and clear title) goest to any children of the original owner. A spouse can also elect to take an immediate 50% interest in the property and give the remaining 50% to any children of the owner, but this election must be made within six months of when the homeowner died. These spousal rights exist regardless of any provisions contained in a last will and testament. Finally, a spouse can waive his or her homestead rights, but minor children are always entitled to their rights (i.e. a minor child cannot be deemed to have waived rights in a homestead).