Florida Annuities: A Great Asset Protection Tool, Even in a Divorce
Divorce seems to bring up a lot of questions when it comes to asset protection and estate planning, especially when exempt assets are transferred pursuant to a divorce. Just recently we discussed the effects of the homestead protections upon divorce, and whether a divorce threatens the homestead protections of property that are normally afforded to Florida residents.
A recent case has now analyzed the annuity exemption in the context of a divorce, and once again, Florida consumers have scored a win.
A Word About Exemptions and Annuities
When a creditor obtains a judgment against you, they have a right to take and sell assets that you own to satisfy their judgment. However, Florida law “exempts” certain assets and property from being taken by creditors. One such exemption is a homestead, as we discussed recently.
But another exempt asset is an annuity—which is why it is often a very smart idea to invest in them. Generally, no matter how big the annuity is, it cannot be touched by creditors if a judgment is ever entered against you.
One catch is that it is exempt as to the “beneficiary” of the proceeds. Normally, if you have an annuity, you’re the beneficiary, so there’s no concern.
But what if you are a spouse and are awarded the proceeds of your other spouse’s annuity in a divorce? Is the annuity still exempt, even though you weren’t the original beneficiary, but are only entitled to the annuity by a court order (divorce decree or marital settlement agreement)?
New Case Discusses Annuities After Divorce
A recent case posed just this question. A party was getting divorced, and an annuity in the name of the husband was ordered transferred to the wife by the divorce judgment. In the process of being transferred, the wife was sued by a creditor, and that creditor sought to collect on the annuity.
The creditor took the position that because the wife wasn’t the original beneficiary, the annuity shouldn’t be exempt as it ordinarily would be.
But the appellate court disagreed, interpreting the term “beneficiary” loosely to include not just the person who originally took out the annuity, but anyone entitled to payments under it. By contract or judgment, because the wife now had the right to use and control the annuity proceeds, she was the beneficiary, and the annuity maintained its exempt status.
An Important Reminder
It’s important to remember that it appears that the annuity was being transferred from one spouse to another—the annuity was not actually liquidated. Had the annuity been cashed out, and cash proceeds went to the former wife, the exempt status of those funds may not be as clear.
When transferring assets in a divorce, particularly exempt ones, it is always best to do so in a way that does not disturb the character of the funds or alter the nature of how they are held, if possible.
If you’re getting a divorce, you may want to think about getting some advice from an experienced estate planning attorney before finalizing anything, even if you already have a family law attorney. Contact Tampa will and probate attorney David Toback to discuss your situation.