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Question:

My 65-year-old husband and I (age 60) invested in a small business together many years ago and still have a considerably large debt, both business and personal with me as secondary signer. We live in Florida. We each have a small personal life insurance policy listing the other as beneficiary. I know that in the event of his death, I could not keep the business running myself. My husband believes that should he die before we sell or pay-off the debts that I can take the life policy benefit for myself and my future personal needs and declare bankruptcy with no obligations for any debt owed at that time. I question as to whether or not this is true and whether we need to make legal arrangements for my future to sustain my quality of life. If so, do I consult just any attorney or one that specializes in what?

Response:

I agree with you, not your husband. If you still have debts after your husband passes away, creditors can make a claim against your assets however you may have acquired them. This includes the proceeds of your husband’s life insurance. This would be different if you had not signed on to the businesses obligations. The life insurance proceeds would not be subject to claims for any debts your husband leaves, just for yours.

I see two possible solutions. First, why not declare bankruptcy now and wipe the slate clean. Hopefully, you and your husband will live for many more years and it doesn’t seem to make sense to carry the burden of the debt all of that time. The other idea would be for your husband’s life insurance policy (and yours too, in case you die before him) to be payable to an irrevocable trust for your benefit. You would have to give up some control over the operation of the trust, but it would not be subject to claim by your creditors.

Of course, I do not practice in Florida so there may be legal or other considerations of which I’m unaware. So, to answer your last question, yes, consult with a Florida attorney who specializes in bankruptcy or asset protection planning.

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