Fraudulent Transfers

This page covers fraudulent transfer law, primarily the U.S. Uniform Fraudulent Transfers Act ("UFTA") and the cases interpreting the Act.

Offshore planning has overshadowed the practical fact that most asset protection cases are won or lost by commercial litigators in post-judgment collection and enforcement hearings in the local state and federal courts. These debtor-creditor disputes rarely focus upon the structure created by the debtor to shield his assets; instead, the salient issues almost inevitably concern the method of transfer of the assets into the structure. If the transfer is defendable, the structure is largely irrelevant (so long as the debtor has no ownership or control of that structure). But the converse isn't true: If the structure is defendable, the transfer to the structure may still be set aside as a fraudulent transfer.

Questions of whether particular transfers are or are not fraudulent transfers represent some of the most important questions in asset protection planning. These issues are resolved by reference to the UFTA in the 41 states that have adopted it. Thus, the study of the UFTA, its history, and the cases that have interpreted the Act, will provide the broadest overview in most U.S. states as to what type of` transactions will, or will not, stand up to creditor scrutiny.

Uniform acts are, of course, anything but uniform. The UFTA, like the other "uniform" acts, was drafted by the National Conference of Commissions of Uniform State Laws a/k/a Uniform Law Commissioners - a completely voluntary group of law professors, former judges, and lawyers who simply have an interest in this area of practice. The Uniform Law Commissioners propose uniform laws to the states, but the individual state legislatures must independently ratify the Act. Of course, it is in this ratification that local politicking in favor of special interests causes slight changes to the language of the Act ultimately enacted for that state - slight changes to language that can be enormous in their practical effect.

Additionally, in each state the UFTA will sometimes be interpreted with reference to "other law" in that state, and such interpretation can dramatically change the impact of the Act. Thus, what would be a fraudulent transfer in Ohio might be a protected transaction in Florida. And what would be brilliant planning for a debtor in Texas might be a misdemeanor in California.

As we are limited in our resources and the time that we can spend on this project, we will not seek to keep up with the changes or variations from state to state except as where noted. This website is meant to give an overview of the UFTA and fraudulent transfer law in general, but not to answer specific questions in a specific state as to what is or isn't a fraudulent transfer. An attorney seeking resolutions to such questions in a particular state must consult the particular Act for that state and the cases cited thereunder.

This website presents essentially five types of information:

• The text of the UFTA

• Examples of recent case law interpreting various provisions of the UFTA

• Our own explanations and analysis.

• The history of the UFTA and drafter's comments

• Civil Conspiracy

  • Civil conspiracy arising from fraudulent transfers

Recent Cases

FRAUDULENT TRANSFER
OPINION SUMMARIES

The following cases are recent developments in fraudulent transfer law:

Han v. Davis, No. G031526 (Cal. App. 12/01/2004)

Ms. Davis transferred her interest in residential real property to her husband as his separate property. They later separated and began divorce proceedings. In the midst of those proceedings, the husband contracted to sell the property to Mr. and Mrs. Han. Before the sale was complete, the wife decided to try to block the sale. Ultimately, she obtained an interspousal transfer deed from her husband in the context of the marital settlement agreement with her ex-husband. She subsequently refused to complete the sale to the Hans.

The Hans filed an action for specific performance of the real estate contract to force the completion of the transfer, as well as for monetary damages. They based their argument for relief on the California UFTA, alleging that the transfer to Mrs. Davis was made with the intent to defraud the Hans. The lower court found that the transfer was fraudulent. Ms. Davis appealed, arguing that California family precludes the application of the UFTA when property is transferred pursuant to a marital settlement agreement.

The appeals court upheld the lower court’s ruling, noting that the California Supreme Court had recently held that the UFTA may be applied to transfers pursuant to a marital settlement agreement in Mejia v. Reed, 31 Cal.4th 657, 74 P.3d 166 (Cal. 08/14/2003).

Lavetts v. Cutter, No. B172197 (Cal.App. 11/10/2004)

The California Court of Appeals held that a transfer of real property from defendant Edward Cutter to his brother was not a fraudulent transfer because the transfer satisfied a debt, and adequate consideration was given. Cutter, individually, and as trustee of an irrevocable trust, transferred property to his brother in order to satisfy a debt to his brother. In an action by another of Cutter’s creditors to set aside the transfer to Cutter’s brother as a fraudulent transfer, the trial court held in favor of Cutter.

At issue in this case was whether Cutter met his burden of proof to show that the transfer was not fraudulent. It was undisputed that Cutter was insolvent at the time of the transfer of the property, or that the transfer of the property rendered Cutter insolvent. The court noted that once a debtor’s insolvency has been proven by the creditor, it is the transferee's burden to prove that the debtor received adequate consideration for the transferred property.

The appellate court found there was substantial evidence that Cutter received a reasonably equivalent value in exchange for transfer-ring the property. In so finding, the court noted that it appeared that the debtor had actually gotten more than equivalent consideration, extinguishing a $40,000 debt for what appeared to be about $20,000 in equity in the property.

Fraudulent Transfer Terms

• Fraudulent Transfer (a/k/a “Fraudulent Conveyance”)
  A transfer in derogation of the rights of a creditor to satisfy his judgment against the assets of the debtor.

• Uniform Fraudulent Transfers Act (UFTA)
  A statute that sets forth the fraudulent transfer laws of most states.

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This website is by far the largest and most comprehensive creditor-debtor and asset protection resource available anywhere. This website hosts thousands of pages of articles, cases, statutes, analysis, and many other resources to assist planners and judgment collection professionals in researching contemporary creditor-debtor issues.

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