The name O.J. Simpson stirs a number of memories, including the slow-speed chase in the white Ford Bronco in 1994. Simpson was charged with killing his ex-wife Nicole Brown Simpson and her friend Ron Goldman but was acquitted. A $33 million civil wrongful death judgment was obtained in 1997 against Simpson. The judgment was not paid in any meaningful way for the past 27 years and, with interest, has grown to over $100 million. Simpson died on April 10 of prostate cancer at age 76.
Despite the Brown-Goldman judgment, Simpson lived a seemingly luxurious lifestyle. This is primarily due to two reasons. First, Simpson acquired his principal residence in the state of Florida. Article X, Section 4 of the Florida Constitution protects a Florida resident’s homestead from creditors. The Florida homestead exemption provides two types of creditor and family protection as follows:
Florida homestead protection. The creditors cannot force a sale of the homestead property before and at death. This exemption protected Simpson’s home from being targeted by the Brown and Goldman families pursuant to the wrongful death judgment. This protection had no valuation limit whatsoever. The entire value of the home was protected.
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Restrictions on devise (inheritance) and alienation. This exemption seeks to protect spouses and family members living in the homestead. For example, the exemption impedes the owner from transferring the homestead to his mistress at death rather than his wife and children living in the homestead. During life, the consent of his spouse living in the property may be required for the sale of or a loan against the property.
Under Florida law, the protection is available only for property considered to be a primary residence. That property must be half an acre or less if located in the city. If the residence is not in the city, then the property cannot exceed 160 acres. Florida’s unlimited homestead exemption provided substantial protection for Simpson from the Brown-Goldman judgment. This exemption helped Simpson to maintain his lifestyle.
Many states have their own version of homestead creditor protection. For example, California’s law homestead protection is $313,200 at a minimum up to $626,400, the exact amount to be determined by reference to the countywide median sale price for a single-family home (adjusted for inflation). Nevada’s homestead law protects equity up to $605,000. Neither California nor Nevada is nearly as generous with its homestead creditor protection as Florida.
Retirement assets were protected, too
The second reason Simpson was able to live a luxurious lifestyle has to do with federal protection for retirement assets. And he benefited from pensions from both the Screen Actors Guild and the National Football League (NFL). Pensions and retirement plan assets are often the best protected assets that we own. Virtually all ERISA-qualified pension plans are federally protected from both creditors and bankruptcy. This includes most defined benefit pension plans, 401(k), profit-sharing or money purchase plans.
Simpson’s pensions, combined with his Florida homestead, allowed him to live very comfortably despite the Brown-Goldman judgment. This is a significant consideration for us all regarding our own asset protection plans.
Note that traditional IRAs, Roth IRAs, SEP and KEOGH plans and 403(B) plans are not provided with federal protection. Those accounts may be protected at different levels based upon state law. For example, California’s law allows you to protect only what’s necessary to support you and your dependents at the time of your retirement.
Two key questions are typically asked in a California court:
- Do you need retirement funds now? If so, how much?
- Will you be able to replenish those funds for retirement if awarded to a creditor?
If you are 40 years old, healthy, employed with an appropriate salary, you are less likely to be protected than if you are 69, suffering from medical issues and unemployed.
Note also that inherited IRAs are not afforded any creditor protection at all. The U.S. Supreme Court in Clark v. Rameker, 573 US 122 (2014), determined that an inherited IRA is no longer considered to be retirement funds under the bankruptcy code. Inherited IRAs are, therefore, not entitled to any protection whatsoever. Clark v. Rameker involved an IRA inherited by the account owner’s daughter. Undecided to date is whether the funds going to a surviving spouse would be guaranteed protection. Note that a surviving spouse can roll those funds into his or her account, which may protect from this risk.
Separate stand-alone retirement legacy trusts may be used as the IRA beneficiary to provide the missing asset protection for beneficiaries. Greater control over distributions can be obtained with the retirement legacy trust.
It’ll take time to sort things out
Time will tell how much of Simpson’s assets will be paid to the Brown and Goldman families. The executor of Simpson’s estate, Malcolm LaVergne, initially vowed that the Goldmans in particular would not receive anything, though he has softened his stance since then, according to CBS News. That decision is not really under his control and will depend on the amount, nature or type and title to assets held at the date of Simpson’s death.
Much of Simpson’s net worth was lost in his criminal trial and in the civil trial that followed. We do not know if Simpson’s pension provided any benefit to his heirs upon his death.
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