Ex-Wife Asks Court to Tap into Homestead Property and Insurance Pol-icy to Satisfy Back Alimony

Florida has a rule that a homestead is exempt from a forced sale which been in effect for many years. But in a recent case, a former wife appealed a trial court’s finding that homestead property and insurance policies of her ex were always exempt from the contempt powers of the court—even if fraud was involved.

Back in 1996, a trial court ordered the couple’s divorce with a post-nuptial agreement. They agreed that the Husband would pay the Wife $5,000 per month in alimony until his or her death, or until she remarried; that he’d give her the marital home; and that he’d maintain a $750,000 life insurance policy.

A few years later, he asked the court to modify the amount of his alimony responsibility. The judge said no and termed the request “somewhat disingenuous,” since he hadn’t paid anything to his ex-wife. In addition, the judge found the ex-husband in civil contempt for “willful and deliberate failure to comply with the alimony provisions” of their post-nuptial agreement. The judge said he owed alimony arrearages of nearly $130,000 and ordered him to pay half of that amount within 30 days.

A few months later, the ex-husband filed for bankruptcy, but the court rejected his petition, finding his alimony arrearages were not subject to bankruptcy discharge. The bankruptcy court recorded the judgment as a lien on the ex-husband’s property.

Before he asked the court to modify his alimony, the ex-husband remarried. After this and after he’d been held in contempt, he transferred the title to his home (which was just in his name) to he and his new wife as tenants-in-common. They took out a second mortgage, but the money was used for “remodeling,” not to satisfy his obligations to his ex-wife. Likewise, he transferred title in a life insurance policy to his second wife—who then borrowed against the entire value of the $200,000 policy. She candidly told the court that she was shielding money from the ex-wife, and that none of her husband’s alimony obligations were satisfied with these funds.

When she heard about this, the ex-wife brought the new wife and the insurance company into the dispute. After an evidentiary hearing on the matter, the trial court held that both the life insurance policy and real property were protected from creditors prior to the transfers. Further, the court accepted the new wife’s claim that because the assets were completely protected from creditors prior to the transfer, their transfer wouldn’t have any effect on a creditor. The trial court concluded that “as a matter of law, the transfer was not fraudulent.” As a result, the ex-wife couldn’t get at those funds to satisfy the alimony owed to her.

Judge Jeffrey T. Kuntz of the Fourth District Court of Appeal wrote that Florida’s homestead rules shield a homestead from a forced sale. Generally, the judge noted that a homestead protection can only be breached in these situations:

  1. Government entities with a tax lien or assessment on the property;
  2. Banks or other lenders with a mortgage on the property which originated from the purchase of the property; and
  3. Creditors with liens on the property which originated from work or repair performed on the property.

The ex-wife argued that a fourth exception, alimony creditors, has long been recognized. The Court of Appeal agreed. Judge Kuntz explained that the exception concerning alimony creditors is founded upon the Florida Supreme Court’s conclusion more than 100 years ago that the homestead protections “should not be so applied as to make it an instrument of fraud or imposition upon creditors.” The Supreme Court also said that the homestead exemption can’t “be construed to enable the husband to claim its benefit against the very persons to whom he owes the obligation of support and maintenance, and that to construe the statute otherwise, would, at least in part, defeat its avowed object.”

Since these early cases, Florida courts have clarified the rule to say that the forced sale of homestead property is permitted when the former spouse claiming the homestead protection acted egregiously, reprehensibly, or fraudulently. Judge Kuntz noted that the circuit court has “the legal authority to foreclose the lien” when an ex acts in that way. Thus, the appellate court found that the homestead protection doesn’t protect a former spouse when he or she acts egregiously, reprehensibly, or fraudulently.

As far as the insurance policy, Judge Kuntz said that the trial court may look to the insurance policy, because the protection for the insurance policy is statutory. And § 222.29 removes the statutory protection if the exemption results from a fraudulent transfer or conveyance. Similarly, § 222.30 removes property from the statutory exemption if a conversion by the debtor resulted in the property becoming exempt. The law is clear, the Court explained, that the exemptions don’t apply when they’re being used for a fraudulent purpose.

Thus, the trial court erred in its conclusion that the transfer of the real property and insurance policy couldn’t be fraudulent as a matter of law due to constitutional and statutory exemptions. The trial court’s decision was reversed and remanded for the trial court to determine if the ex-husband acted egregiously, reprehensibly, or fraudulently to justify a forced sale of the protected property. Spector v. Spector, 2017 Fla. App. LEXIS 7547; 42 Fla. L. Weekly D 1164 (Fla. DCA 4th May 24, 2017).

 

Distribution of Marital Assets and Liabilities in Divorce

Florida statutes and case law provide for an “equitable distribution” of marital assets and liabilities. Marital property should be divided fairly or equitably (not necessarily equally), regardless of how the title is held. Get help you with all the issues you will commonly face in divorce, such as property division, alimony, and child support. Our legal representation will help you get better results more quickly. Call the DeVoe Law Firm for a free consultation.