OCT 2009: WealthSaver Report - Fraudulent Transfers

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OCT 2009: WealthSaver Report - Fraudulent Transfers

By Bradley G. Barth

Welcome to the WealthSaver Report, a newsletter by Barth Berus & Calderon, LLP. This newsletter aims to educate you on the subjects of: Asset Protection and Wealth Preservation. Since asset protection and wealth preservation involve different strategies - from the simplest to the most complex - we hope to keep you informed of these strategies through newsletters, white papers, webinars, and podcasts delivered in an easy-to-understand format. We hope you find these newsletters interesting and useful.

New This Month: Fraudulent Transfers

Asset protection is preventative planning. Once you have a lawsuit or liability, many otherwise protective strategies are no longer effective. There are laws relating to asset transfers a person makes for creditor protection purposes. In fact, a great and very complicated body of law has developed around the issue of whether an individual is or should be permitted to transfer his assets for the purpose of placing them beyond the reach of a creditor. Many such transfers may be attacked by the creditor as fraudulent.

A fraudulent transfer (or conveyance) is not "a fraud" in the criminal sense of the law, but rather refers to a transfer that is unfair to creditors and in violation of the concept of good-faith dealings with the rest of society. Fraudulent transfer laws give creditors the right to unwind or revoke certain transfers made by debtors so that the transferred property can be seized by the judgment creditor. In other words, whatever the debtor sold or gave away is transferred back to him so the creditor can seize the property. This is not to say that planning for creditor protection is automatically fraudulent. When properly done, it is quite legal and can positively protect assets. However, a successful fraudulent transfer claim can partially or totally destroy your asset protection plan.

As a general rule, if you make a transfer that falls into any of the following categories, it is likely that the transfer will be considered fraudulent:

Transfer made with the actual intent to hinder, delay, or defraud a creditor.
Before the transfer was made, the debtor had been sued or threated with suit.
The debtor retained possession or control of the property transferred after the transfer.
The transfers was substantially all of the debtor's assets.
The transfers was for less than fair value.
Transfer to an insider to pay a preexisting debt, where the insider had reasonable cause to believe you were insolvent.

If a fraudulent transfer is deemed by a court to have been made:

Your creditors can reach assets or benefits that you can reach.
Your creditors can receive what you have a right to receive.
Your creditors can reverse a fraudulent transfer.
Your creditors can have your assets placed in the hands of a court-appointed receiver.
Your creditors can attach, freeze, and/or force a sale of your assets, in certain cases.
Your creditors can force you into bankruptcy.

Of course, if none of the above rules apply, or if the court is convinced that your plan had an innocent purpose (i.e., estate planning, tax planning, or business planning - essentially a "sniff test"), then the assets will likely be protected and unreachable by your creditors.

Your best protection against a potential fraudulent transfer claim is to shelter your assets before you have an existing or foreseeable creditor. Get assets out of your name while the creditor seas are calm, even if the transfer is to a very simple structure.

You can schedule a complimentary teleconference with me to discuss your asset protection concerns by clicking here.

REMEMBER: Protect what you own as vigorously as you worked for it!