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Safeguarding your exempt funds by segregating bank accounts

One of the most recurring issues that I deal with in speaking with people about personal finance is the question of how to protect what they have. You may have a lot or a little. In either case, you should take certain simple steps to protect yourself from attacks by creditors. Creditors can include businesses that you have taken loans from, medical or other service providers, or someone that fell on your front porch while you were not home (and plans on suing you). The point is that even if you are thinking that you don't currently have any debt issues, its impossible to see what may lie around the corner.

Certain categories of income are protected from creditors in Florida. The most common among those are: Social Security, Disability Income, Worker's Compensation, Unemployment Compensation, Retirement and Pension benefits, life insurance proceeds, and the wages of a head of household.

A head of household is defined as anyone who provides more than 50% of the support for a dependent. A dependent can be a spouse, a child, or any dependent relative. If you are the major wage earner in your family, then you most likely qualify as "head of household." See Fla Stat. 222.11

The law safeguards these sources of income from seizure or garnishment by creditors. Just because income is legally protected though, does not mean that aggressive creditors and their lawyers will not try to take it from you. I speak with people every week who have had wages garnished or bank accounts seized when they could have taken simple and easy steps to protect themselves and their money.

The most basic and easy method of assuring that legally protected income in a bank account will receive the protection that it deserves is to make sure that it is not combined with unprotected money. Simply put, this means that if you receive any income in the categories listed above, deposit it in a bank account that is solely for that income.

In other words, if your income comes from Social Security, deposit that money in an account where you do not deposit any other miscellaneous type of money such as gift money or funds received from selling property. That account with only Social Security (or other specifically protected income ) may be attacked by creditors, but you will have the right to bring the issue before a judge and win the release of your protected funds.

When you mix protected and unprotected funds together in an account, it allows a creditor to argue that there is no longer any way to determine which funds are protected and which are available to creditors. Many judges will agree with this argument and allow the entire account balance to be taken for collection.

Follow this rule of segregation of funds, and you may save yourself a great deal of regret and hardship later on.