I saw some bad advice given by another lawyer the other day. It happens often when an attorney tries to give advice outside of his or her normal area of practice. Unfortunately, I see it all too often from divorce attorneys.
Divorce attorneys sometimes give bad advice regarding real estate title issues and how best to handle debt and assets when considering a Florida bankruptcy filing. Advising clients about debt, assets, and exemptions can be dangerous if an attorney doesn’t have much experience with helping people file for bankruptcy.
The specific issue I saw was a divorce lawyer – not a bankruptcy attorney – advising a separated couple that they need to liquidate their children’s education trust or Florida College Prepaid program in contemplation of a divorce and eventual bankruptcy filing.
Hold on! Not so fast! I wonder if the attorney asked questions as to how much money is in the Florida Prepaid program, when it was placed in the account, or whether either spouse is still contributing to the program?
These are extremely important questions, especially in contemplation of a bankruptcy filing.
The couple may have needlessly drained the accounts that are for the benefit of their children, may incur penalties, and, more importantly, lost the benefit of purchasing their children’s college education at low amount established when they started the fund.
A bankruptcy filing after the divorce may be difficult or impossible now, and certainly much more expensive to start later as the children are closer to college age.
I started the Florida College Prepaid program about a year ago. My children were 13 and 4 when I started. Surprisingly, the cost was about the same for each. My 13 year old is only 5 years away from college. My 5 year old obviously has more time before college, but it will cost more when she is ready to attend.
I cannot imagine having to start all over again for my 5 year old three years or 5 years from today. I don’t want to know how much the price will have jumped by that time.
Back to the attorney that probably did not ask the proper questions.
A bankruptcy filing may have come up as an option for the divorcing couple to deal with their debts. But apparently someone may have panicked regarding the Florida College Prepaid funds.
They may have been completely exempt from all creditors! There might have been no need to cash in the children’s funds at all!
Here is the test under the federal exemptions:
1) Any money placed into a qualified college prepaid program at least 2 years before any bankruptcy case is filed is completely exempt from your creditors.
2) Up to $5,475 placed into the program between 2 years and 1 year before a bankruptcy case is filed is exempt. Anything over $5475 may be recovered by the bankruptcy trustee.
3) Any money placed in the program in the 12 months before a bankruptcy case is filed is not exempt. The trustee may recover all these deposits.
Florida Statute 222.22 also exempts college prepaid. The reason I like to look at the federal exemption is that a trustee might wonder why someone is placing large sums into college prepaid when they knew they were filing bankruptcy.
Most people are on a 55 month plan to fund the Florida College Prepaid program for their children. So careful attention should be given to when the money has been funded to the account and when the bankruptcy case should be filed.
Waiting days, or months, might make a huge difference in exempting some or maybe all of your children’s college tuition. Don’t just liquidate your assets without speaking to me first. As with many other assets as well, your children’s college fund may be exempt from creditors with a only a small amount of simple bankruptcy planning.