Way Down Upon the Bifani River1: Setting Aside Fraudulent Transfer Into Florida Homesteads

The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing.


By Alan S. Gassman, Esq., Travis Arango Dena Daniels

Gassman Law Associates, P.A., Clearwater, Florida2

Debtor's Transferee Who Received  Pre-Bankruptcy Fraudulent Transfer Ends Up
 All Wet

The Florida Supreme Court, in Havoco  of Am., Ltd. v. Hill, 790  So.2d 1018 (Fla. 2001), held  that the homestead protection afforded under the Florida Constitution  trumps the Florida Fraudulent Transfer Statute, and therefore a debtor  subject to an impending or actual judgment can use monies to purchase  or pay down the mortgage on a homestead owned by the transferor, with the creditor having no remedy against the homestead unless or until the debtor files for bankruptcy by reason of the provisions of the 2005 Bankruptcy Act "Mansion Law."3

But what if the debtor, knowing that he or she may be going into bankruptcy, gives the monies to a close friend who puts them into a homestead and then intends to hunker down and remain judgment proof, and outside of bankruptcy, so that the creditor is not able to recover the funds? And the debtor is able to live with the close friend and enjoy the benefit of the home. Will this boat float?

This exact factual pattern has occurred more than once, leading the courts to look for a way to reach the home equity and prevent this type of conduct, as opposed to waiting for Congress to endorse an appropriate remedy by amending the Bankruptcy Code.

Judge Michael Williamson, a very well-respected bankruptcy judge of the Middle District Bankruptcy Court sitting in Tampa, came to the conclusion in 2013 that a fraudulent transfer, directly or indirectly, to the debtor's cohabiting and apparent significant other before filing bankruptcy rose (like a river) to the level of being considered a secretion of "ill-gotten gains" under the Florida case law, saying specifically that:Here, LaMarca's Sarasota house was acquired with ill-gotten proceeds. LaMarca used the nearly $670,000 from the sale of the Golden Eagle Road property to purchase her Sarasota house. It would be inequitable and unjust to allow the Debtor [Bifani] to fraudulently transfer property to LaMarca to keep it from his creditors.4

The Federal District Court sitting in Tampa found that the decision did not hold water, and overturned it,5 but the Eleventh Circuit Court of Appeals  agreed with the judge, finding that:Under Florida law, homestead property purchased with funds obtained by fraud is not exempted from equitable liens. See Havoco, 790 So.2d at 1028. The facts of this case do not fall within Havoco's exception because the funds used to purchase the Sarasota property were obtained through Bifani's fraudulent transfers….That the fraud occurred in a bankruptcy proceeding rather than a criminal offense is irrelevant.6

It is almost certain that the U.S. Supreme Court will have no interest in hearing this case, and the Florida Supreme Court will not have jurisdiction because bankruptcy court cases pass through the federal system, and not the state system.

The Eleventh Circuit Court of Appeals could have requested guidance from the Florida Supreme Court by certifying the issue as a question of importance but apparently chose not to do so.

Floridians and their advisors will now most likely need to wait for a number of years before similar factual patterns occur in circuit courts and become subject to circuit court decisions that are appealed to District Courts of Appeals, and then eventually to the Florida Supreme Court.

A prominent bankruptcy attorney has had this to say about the case:If you think it through, the whole idea of getting around the federal Bankruptcy law by doing something through an apparent straw man that you cannot do directly, you can certainly conclude that at least the spirit of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (closing the so-called mansion loophole via new sections 522(o) and (p)) was violated. That doesn't  really shock me. If you're going to try to take advantage of the Florida homestead law, you need to follow the centuries old method of buying your own house, and if this is a fraudulent transfer you also have to stay out of bankruptcy for 10 years thereafter. It's not escaping taxes or domestic relations liability, it's not money you stole from somebody else, but a well respected bankruptcy judge, with affirmation from the highest federal court overseeing Florida federal courts have found that it is the equivalent of transferring ill-gotten gains into homestead. Debtors andadvisors are going to have to stick with the patterns that worked, at least for the foreseeable future. It could be a decade or more before the Florida Supreme Court or the US Supreme Court ever look at this.

Judge Williamson had this to say after the 11th Circuit Court of Appeals  opinion was published:While Havoco attracts the most attention in allowing a fraudulent conversion of non-exempt property into a homestead, what is often overlooked is that Havoco  itself  recognizes the Fishbein  exception, 619 So.2d 267 (Fla. 1993),  which allows the imposition of an equitable lien where there are two frauds: (1) the permitted fraudulent conversion into the homestead,  and (2) the initial wrongful conduct that taints the proceeds as being ill-gotten, e.g. the funds were stolen or obtained through fraud. The 11th in Bifani simply confirms what has long been the law in this area.7

While this case will be rightly criticized as judicial legislation, and seems to also add to the longstanding confusion among some courts and advisors that a fraudulent transfer somehow constitutes fraud, it also shows that conventional knowledge will sometimes be turned on its ear, without warning, and that clients and advisors should not rely upon any one creditor protection technique when multiple techniques are available.

For more information, in the Tax Management Portfolios, see Rothschild and Rubin, 810 T.M., Asset Protection Planning,  and in Tax Practice Series, see ¶6350, Estate Planning.

Copyright©2015 by The Bureau of National Affairs, Inc.


 1 The Suwanee River is a 246-mile blackwater river that can take you much of the way from the Bankruptcy Court in Tampa to the 11th Circuit Court of Appeals in New Orleans, which is where this case went before the debtor's raft sank. Made famous by Stephen Foster's song, The Old Folks at Home (Foster never saw the river but read about it). Mr. Gassman owns two lots on this river that he bought in 2007 and would gladly sell for half of what he paid, and no extra charge for the alligators who live there. See Way  Down Upon The Suwanee River Far Far Away, LLC on the Sunbiz Website, and  also Hey Hey Santa Fey (river), LLC, and Withlacoochiecoochicoo,  LLC. which own his other failed river investments.

This article is dedicated to the memory of Joan Rivers, who performed in Tampa Bay shortly before her death at age 81 with great energy and physical strength.

2 Travis Arango and Dena Daniels are law students at Stetson University College of Law in Gulfport, Florida.

 3See 11 U.S.C. §522(o), §522(p).

 4In re Bifani, 493 B.R. 866, 871 (Bankr. M.D. Fla. 2013).

 5In re Bifani, No. 8:13-cv-02197-JDW, Order of Feb. 13, 2014 (M.D. Fla. 2014).

 6In re Bifani, 580 F. Appx. 740, 747 (11th Cir. 2014).

 7 In Havoco, the Florida Supreme Court held that an intentionally fraudulent transfer into homestead  would not be set aside because the protection of homestead under the Florida Constitution trumps the Florida Fraudulent Transfer Statute. In Fishbein, however, the Florida Supreme Court held  that when ill-gotten monies are transferred into homestead, the transfer  can be set aside. In Bifani, the 11th Circuit agreed  with Judge Williamson that a fraudulent transfer made by someone contemplating bankruptcy will be considered as ill-gotten gains for purposes of recapturing the transfer from the homestead of the transferee that was funded thereby.

Request Transfer Pricing Report