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Even During a Malpractice Lawsuit
Marc Singer, CFP & Scott Wells, CFP
Wages and wage accounts are two of the assets protected under Florida law. It is important to utilize these vehicles in the proper framework. Wages are protected as long as you are 1) head of household and 2) an employee of a P.A. or corporation. To qualify as a head of household, you must be the major earner (more than your spouse) and be married or have a dependent.
All W-2 income is considered wages. Non-W-2 income is not.Therefore, solo practitioners who are not incorporated receive profit, not W-2 income, and that is not protected.
Wage accounts are also a protected asset. In order for a wage account to be protected, the account should be set up as a separate checking account with you as the owner. The most important factor is that only your W-2 income be deposited into this account; totally segregated from non-wage income such as research grants or consulting fees. If the wage account is co-mingled, it will probably lose its protected status.
Florida law specifies a 'bank account', so we recommend using a bank rather than a brokerage account. Since bank officers may not be familiar with the concept of wage accounts, the way to designate such an account is to print 'Wage Account' under your name on the checks. Your spouse may have signature authority with a power of attorney (POA).
How much can be protected?
Realistically, the wage account is not useful for accumulating large amounts. We recommend a maximum of $30,000 be in your wage account at the time of a judgment.
Then what good are they?
It is important to understand that one of a physician's largest assets is their income. A doctor who earns $200,000 per year will have $1 million in wages during the 5-year duration of a typical lawsuit. Wage accounts, used as part of an overall strategy, create a protected cash flow conduit TM for accumulating assets.
Here is how it should work.
The doctor's paycheck (protected) is deposited into the wage account (protected). From this account, the doctor can pay all living expenses (protected), make regular investments into annuities (protected) and pay off a primary homestead mortgage (protected). Using this protected conduit, it would be possible to accumulate significant assets, even in the middle of a lawsuit. A charge of fraudulent conveyance is avoided since there is never a transfer from non-exempt to exempt assets.
What about garnishing wages?
Wages in excess of $500 per week can be garnished, but only after a judgment is awarded. In many cases, plaintiff attorneys will not garnish wages immediately because then the physician might be tempted to declare bankruptcy. The day after declaring bankruptcy, wages are then free from garnishment. Plaintiff attorneys fear the threat of bankruptcy since they rarely collect any money from this process.
Virtually every doctor should establish a wage account and implement the protected cash flow conduit TM concept since it is easy and requires no cost to implement.
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