Debtor Liability – Can Asset Protection Get You In Trouble
Any creditor can attack the implementation of an asset protection plan by alleging that certain transfers of your assets to other people or entities or the investment of money in exempt assets (such as annuities) constitutes a fraudulent transfer or fraudulent conversion because these conveyances were done with the intent, or effect, to hinder, avoid, or delay creditor collection. Any asset protection conveyance can be challenged as “fraudulent” for up to four years even if you had no obligation or duty to the challenging creditor when your asset protection planning was implemented.
The terms “fraudulent transfer” and “fraudulent conveyance” have a bad connotation, and many people incorrectly confuse these technical legal terms in asset protection law with the tort of common law fraud or even with criminal fraud. As a result, some people are fearful that asset protection planning could result in their being held liable for damages in tortious fraud or even charged with criminal fraud. Just the opposite, several Florida court decisions, as well as some federal courts in other states, have held that a fraudulent conveyance to avoid creditors claims is not tortious fraud and is not criminal fraud. As a result, a creditor who claims that part of your asset protection planning involved a fraudulent conveyance cannot also charge you with the crime of fraud and cannot seek additional civil damages based on common law theories of fraud, deceit, or misrepresentation.
The Florida law of fraudulent conveyances are based on specific Florida statutes, particularly Florida Statutes 222.30 and 726.101. These Statutes provide that a creditor may seek from a court equitable remedies to undo a fraudulent conveyances made to implement an asset protection plan. These equitable remedies are designed to put property back into the debtor’s hands so that the same property is available to satisfy a creditor’s judgment. Additionally, if you had transferred property to a third party, such as a friend or family member, and the transferee (recipient) is unable or unwilling to return the property, the court may impose a money judgment against your transferee for the value of the property conveyed. Even then, you are not liable for any additional damages based on the value of property fraudulently conveyed.
Therefore, asset protection planning is very unlikely to increase your liability and unlikely to get you in trouble. In almost all cases, even if part of your asset protection planning is successfully challenged as a fraudulent conveyance, a court will only put you back in essentially the same legal situation you were before your asset protection plan was implemented.