Do You Know Your State’s Homestead Protection Laws?Submitted by Financial Planning Hawaii on June 19th, 2012
Not all states have homestead exemption laws, and the degree of protection in states that do have them varies widely. Some states limit protection only up to a certain value, while others impose acreage limitations. In instances where homestead values exceed these limits, creditors may still force the sale of the property, but the homeowner may be entitled to keep a certain amount of the proceeds. In some states protection is automatic, while in others the homeowner must file a claim for homestead exemption, usually with City/County Clerk’s office or at the Registry of Deeds.
Massachusetts is an example of a state with liberal homestead protection statutes. According to Massachusetts’ public information literature pertaining to The Homestead Act (MA General Laws, Ch. 188, §1-10), there is automatic homestead protection of $125,000 for all homes used as a primary residence in the state. However, homeowners who actively file a form called a “Declaration of Homestead” may be afforded up to $500,000 per residence, per family.
Hawaii’s homestead protection (Hawaii Revised Statutes § 651-91, § 651-92, and § 651-96.), in contrast to Massachusetts’, is far more limited. Under the Hawaii exemption system, homeowners may exempt up to $20,000 of their home or other property covered by the homestead exemption. If you are the head of a family or 65 years or older you can exempt up to $30,000. However, the property cannot be larger than one acre. In Hawaii, the homestead exemption applies to real property, including one’s home or condominium. You must reside in the property. The homestead exemption also applies to proceeds from the sale of a house for up to six months after the sale. In Hawaii the homestead exemption is automatic – you don’t have to file a homestead declaration in order to claim the homestead exemption in bankruptcy.
Understanding the protections afforded under your state’s homestead exemptions may one day help protect your family from creditors’ claims arising from litigation, bankruptcy filings, and even Medicaid liens. It is one of those little areas of financial planning that is easy to overlook, but that can turn out to be a lifesaver during a time of need.
In closing, although this column is intended to raise general awareness of this potential protection tool, it is critical to understand (1) that the homestead exemption should not be viewed as a substitute for homeowners or umbrella liability insurance coverage, and (2) nothing in this article should be viewed as a substitute for sound legal advice. For guidance regarding the application of homestead exemption laws to your specific situation, all clients are advised to consult with their attorneys.