ASSET PROTECTION - Fraudulent Conveyances
Fraudulent Conveyances
What are fraudulent transfers and conversions?
The most important issue in any asset protection plan is whether
or not previous planning transactions constitute fraudulent
transfers or fraudulent conversions (collectively, “fraudulent
conveyance”) as defined by Florida Statutes. A fraudulent
transfer is a debtor’s transfer of legal title to his
real or personal property to a third party with the intent to
hinder, delay or defraud a present or future creditor. A fraudulent
conversion is a debtor’s conversion of non-exempt real
or personal property subject to creditor attack to a different
type of property, still owned by the debtor, which new property
is exempt or immune from creditor attack. Florida Statues provide
that a creditor can sue to overturn a transfer or conversion
up to fours years after a conveyance was made or obligation
incurred. Asset protection planning and transfers become immune
from fraudulent conveyance suspicion four years after the planning
takes place.
What is the consequence of making a fraudulent transfer or conversion?
Florida Statutes provide courts equitable remedies to undo fraudulent
asset protection planning. Fraudulent transfers or conversions
may be undone and reversed by a court’s putting the property
back in the debtor’s hands where the property becomes
subject to the creditor collection process. The Statutes provide
several equitable remedies to assist the creditor’s collection
of these converted assets including injunctions against further
transfers, imposing a receivership on the assets, or imposition
of a constructive trust. A creditor alleging fraudulent conveyance
may sue not only the debtor transferor but also the transferee
who received the property in order to undo the transfer. Consequently,
a fraudulent transfer to a friend or family member is likely
to make that friend or family member a defendant in a creditor’s
fraudulent transfer lawsuit. Fraudulent conveyances are not
prohibited and are not illegal. The subject statutes do not
provide for awards of additional damages against the debtor,
and the statutes certainly do not impose criminal fines or penalties.
Florida courts interpreting these statutes have pointed out
that a debtor’s monetary liability cannot be increased
because the debtor made a transfer or conversion later determined
to be a fraud against present or future creditors.
What makes a transfer or conversion a fraud against creditors?
Not all transfers or conversions which move assets beyond a
creditor’s reach are fraudulent and subject to reversal.
Whether or not a transfer or conversion is intended to hinder,
delay, or defraud creditors depends on the debtor’s purpose
and his intent behind the transfer or conversion. To ascertain
the debtor’s purpose and intent of a property transfer
courts look to factors which are often indicative of intent
to avoid creditor claims. For example, a court will examine
whether any particular transfer was made to a debtor’s
family member; whether a transfer was concealed; whether the
debtor retained effective use or control over the property transferred;
and, whether the transfer rendered the debtor insolvent. All
of these above factors suggest that a transfer was a fraudulent
conveyance which the courts should reverse.
Defense against fraudulent conveyance allegations.
When a creditor is trying to collect money from a debtor who
has previously engaged in asset protection planning and has
little or no assets easily subject to creditor collections a
creditor will almost always institute an action attacking one
or more of the debtor’s prior transfers as fraudulent
transfers or conversions. Just because a creditor believes a
conveyance was intended to defraud creditors does not mean a
court will set aside the conveyance. A debtor can show many
legitimate reasons to convey assets other than avoiding
creditors.
How the fraudulent conveyance issue impacts asset protection planning?
Just the possibility of a creditor’s allegations of fraudulent
conveyance should not deter aggressive asset protection planning
prior to time a judgment is entered by a court. People have
a constitutional right to control or transfer their property
until such time as a judgment creditor obtains a legal interest
in the property. This is why the applicable statutes do not
prohibit or make illegal fraudulent conveyances. Because a court
cannot increase the amount of the judgment damages already awarded
against a debtor because of a debtor’s fraudulent conveyance,
there is little or nothing to lose by planning to protect your
property even if some planning might be subsequently challenged
or even reversed.
