There are times where (potential) judgment debtors try to be way to crafty. And, guess what, it doesn’t always work! A recent case exemplifies this point.
In DeJesus v. A.M.J.R.K. Corp., 43 Fla. L. Weekly D331a (Fla. 2d DCA 2017), a plaintiff sued a defendant corporation in a personal injury action. During the litigation, the defendant corporation transferred residential property it owned to its sole shareholder. This was done through a quitclaim deed and was obviously done as a down and dirty asset protection technique. Of course, the quitclaim deed lacked consideration and was defective – the transfer was invalid.
The plaintiff recovered a judgment against the defendant and initiated proceedings supplementary, as a judgment creditor, to collect on the judgment. (Getting the judgment is one thing. Collecting on the judgment is another and oftentimes the most important consideration.). Plaintiff asserted a claim against the shareholder arguing that the transfer of the property was not effective and was done to prevent the forced sale of the asset owned by the company. The trial court held that even though the conveyance of the property was ineffective, the sole shareholder was entitled to homestead protection on the property, meaning it was protected from a forced sale of the property.
On appeal, however, the appellate court reversed. The property was owned by the corporation (the transfer was ineffective) and a corporation is not entitled to homestead protection. Just because the sole shareholder lived in the property did not change the fact that the property was owned by a corporation; it also does not give the sole shareholder an interest in the corporation’s property. Ultimately, this will mean that without the homestead protection the judgment creditor should be able to force the sale of the residential property, which is likely the only asset owned by the corporation.
If you are a defendant in a lawsuit, doing things down and dirty doesn’t always work, as the defendant in this case may have found out. Make sure to consult with counsel so your interests are best protected. It is highly likely that the defendant in this case considered the advice of counsel but did things notwithstanding the advice. Perhaps the defendant did not even consult with counsel thinking once the property was transferred during the litigation the corporation was judgment-proof.
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