Asset Protection

WILL THE HOMESTEAD LAWS PROTECT YOUR HOME?

Forty-five states feature so-called homestead laws. The laws fully or partly shelter the family home from creditors. Homestead exemptions usually extend only to real estate owned and occupied as the debtor's principal residence; however, the property eligible for homestead protection is not always clear. Some states, for instance, limit homestead protection to single-family residences and exclude duplexes, triplexes or apartment buildings where only one unit is debtor occupied. When the debtor's personal residence cannot be legally segregated from the remaining building, the entire property may be homestead disqualified. If you own a multifamily residence, check this point carefully.

Homestead protection generally extends to condominiums, as a condominium is considered property legally independent of other real estate. Ownership in a cooperatively owned building may not always qualify for homestead protection because the debtor does not own real estate but only shares in a corporation that owns the building, coupled with exclusive rights to occupy a specific apartment. New York cooperatives are popular and are homestead protected under New York law.

Homestead protection can even apply to mobile homes or boats when used as a permanent residence. This will also vary among states and must be carefully checked. You may also lose homestead if you title your home in another entity, such as a living trust.

Because homestead laws can be unclear, never assume that your home is protected. Also remember that five states provide their homeowners absolutely no homestead protection, leaving the entire equity in the family home vulnerable to creditors. Most states protect only nominal equity$10,000 or lessand thus have negligible value as asset protectors.