Will Richard Fuld’s “Scam” Work?

While taking my son to school recently, I heard some DJs prattling on about how Richard Fuld had sold his Jupiter Island mansion to his wife for $10.00.  (Actually, it was $100.)  The DJs dubbed this the “oldest dodge in the book” and opined that he would never get away with it.  Their comments got a little more intelligent when they commented that it might fail because the couple could not prove Florida residency.

Actually, Florida law might allow him to “get away with it.”  First, as one law professor pointed out, real property owned jointly by a married couple in Florida is a tenancy-by-the-entireties.  Entireties property is protected from someone that only one of the spouses owes money too.  Thus, no one who gets a judgment against Richard Fuld could seize the mansion unless they also had a valid claim against Mrs. Fuld.  The property was exempt from creditors of Richard Fuld even before he transferred his interest in it to Mrs. Fuld.  It was not necessary for Fuld to transfer his interest in the home to his wife,  If he had left it in joint names, it would have remained safe from creditors of his.  Perhaps Fuld failed to seek legal advice before transferring the home to his wife?

Second, if  Mrs. Fuld can establish that the Jupiter Island mansion is her primary residence.  She can claim it as her homestead and it will be exempt from creditors of hers.  A person’s homestead under Florida law is completely exempt from the claims of creditors.  Of course, if Mrs. Fuld cannot prove Florida residency, then she cannot claim the constitutional creditor protection for the property and it is subject to claims of any of her creditors.  Thus, the Fulds may have actually decreased the protection the home enjoyed against creditors because now it may be subject to the claims of anyone who Mrs. Fuld owes money.

Beware the Forgotten Spouse!

This post is based on a real case. It is an excellent example of how delay and a failure to plan can hurt you and your family.

Joe and Sally were an older couple and both had children from previous marriages. They married after knowing each other for about one year. Neither one of them was “wealthy” and they did not bother with a prenuptial agreement. In fact, Sally deeded two pieces of real property that she owned to herself and Joe creating tenancies-by-the-entireties in the properties. However, the marriage did not work out and after several years Joe returned to his home in Virginia.

Sally died fifteen years later still married to Joe. She never bothered to get a divorce or a post-nuptial agreement. Her will left everything she owned to her only son, Charlie. At the time of her death, she owned the two real pieces of property as tenancies-by- the-entireties with Joe and approximately $300,000.00 in CDs, checking accounts, and savings. All of the $300,000.00 was either payable on death to Charlie or in a joint account with him. The real properties were worth about $250,000.00. Sally and Charlie lived on one of the parcels of real property, which was Charlie’s only home. She hadn’t seen or spoken to Joe in fifteen years. They hadn’t even lived in the same state during those years. Upon hearing of Sally’s death, Joe (being no fool) immediately sought counsel and filed a claim for an elective share. He also laid claim to the two pieces of real property.

Under Florida law, Joe became the sole owner of the two pieces of real property when his “wife” died. Joe claimed an elective share in Sally’s estate. See, Fla. Stat. §732.201 et seq. Because of the elective share allowed the surviving spouse of a spouse who dies domiciled in Florida, Joe will also receive thirty percent of the funds from the CDs, checking accounts, and savings even though they were all co-owned with or payable on death to her son Charlie. In other words, Joe gets two valuable pieces of real estate worth $250,000.00 plus $90,000.00 in cash for a total of $340,000.00. Sally’s only son Charlie, the sole beneficiary of her will, receives $210,000.00 and loses his home. Somehow I don’t think that is what Sally intended to happen. I’m sure she intended for Charlie to continue living in their home and to receive all of her money, as her will provided.

The moral of this story is to not leave any loose ends. Sally could have avoided this problem by divorcing Joe when he moved to Virginia Sooner would have been better than later so as to assure a “short term marriage.” Alternatively, she and Joe could have had a prenuptial before they married or a post-nuptial agreement afterwards. Once they were married, the only way to avoid his claim to an elective share would be a trust unless he voluntarily waived his rights in writing, which is what a nuptial agreement helps with. She should never have gifted one-half of her real property to Joe. Once she did that, there was no way to undo it without Joe’s cooperation. In my experience, once such a gift is given, it is rarely, if ever, freely returned and always ends up costing the donor. For the sake of your loved one, don’t forget that long gone spouse!

Copyright Notice: All Rights Reserved Harry Thomas Hackney, P.A. 2008