Often, the difference between effective asset protection and a fraudulent conveyance is how and why structures and transactions are put together. Doing estate planning or succession planning or forming cross generational business structures is not a fraudulent conveyance. Forming a business for the purpose of making money in order to pay lawful obligations is not a fraudulent conveyance. Using an asset as collateral to borrow money to defend against predatory litigation is not a fraudulent conveyance. Selling an asset for fair market value to an unrelated third party buyer is not a fraudulent conveyance. Conveying an asset to a business entity in exchange for an interest in that entity of equivalent value is not a fraudulent conveyance. Segregating personal assets from business risk by forming a corporation or other business entity in which to conduct business is asset protection, but not a fraudulent conveyance. If you lock your doors at night you do asset protection. Deviation from the usual method or course of businessĭoing asset protection is not a fraudulent conveyance.The secrecy of the transaction in question.The existence or a cumulative effect of a series of transactions after the onset of debtor’s financial difficulties. The financial situation of the debtor at the time of transfer or after transfer (i.e., insolvency).The existence of the threat of litigation at the time of the transfer.The retention of possession, benefits or use of the transferred property.Becoming insolvent because of the transfer (“insolvent” means debts in excess of assets).The list varies slightly from place to place, but badges of fraud generally include the following: However, collectively courts may determine that they rise to the level of evidence of of intent. Such badges of fraud alone or individually are conclusive. The courts have come to call such circumstances “badges of fraud”. As a result, in order to prove such intent creditors must rely on the circumstances of the transaction in question. Proving actual intent is tough because it requires evidence of what is going on in someone’s head. It is much more difficult to prove intent. Of the two tests for whether or not a transfer is voidable, the lack of adequate consideration is the easiest to prove. More often than not, the prospect of the fight brings the parties on both sides of the conflict to the negotiating table. Proving fraudulent conveyance is a hard fought battle. The current law, UVTA (as of 2014) (formerly known as UFTA updated in 1979) has been enacted in 43 states (including Delaware), the District of Columbia, and the US Virgin Islands. Another famous case involving a transaction claimed to be voidable is known as Twyne’s Case (3 Coke 80b)Īdopted by 26 states (1918). In the common law tradition, fraudulent conveyances were first formally recognized under The Fraudulent Conveyances Act 1571 (13 Eliz 1, c 5), also known as the Statute of 13 Elizabeth. It is for this very reason that Asset Protection is best served cold. In most cases, after four years a transaction is not voidable. There is generally a limit to how far back a creditor may go to void a transaction. There is essentially a two pronged test to determine if an asset transfer is a fraudulent conveyance: 1) was the asset transferred without adequate consideration (sometimes called “constructive fraud”) UFTA, Sections 4(a)(2)(i), 4(a)(2)(ii), 5(a), and/or 2) was the asset transferred with the actual intent to hinder, delay or defraud any creditor (sometimes called “actual fraud”) UFTA, Section 4(a)(1). a Fraudulent Conveyance is most often determined pursuant to Uniform Voidable Transactions Act ( UVTA), until 2014 known as The Uniform Voidable Transfer Act of 1984, 11 USCA § 548 (“UFTA”). Notably, lawyers may also get caught up in the liability. It is important to note that a fraudulent conveyance can also result in a judgement against the person who first received the transferred property. A fraudulent conveyance may result in a creditor taking something you thought you had put out of harms way, but it won’t land you in jail. It only happens in court proceedings, either civil litigation or bankruptcy. Undoing such a transfer is a remedy implemented as a creditor’s right in debt collection actions. “Clawing back” a transaction is like pulling a nail out of a board with the claws of a hammer. In other words, the transfer can be undone or clawed back in order to satisfy a creditor’s claim. A fraudulent conveyance is an asset transfer that is voidable. First, a fraudulent conveyance has nothing to do with “fraud” per se.
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