Reasonably Equivalent Value in Florida Fraudulent Transfer Law

Reasonably equivalent value is the central element of a constructive fraudulent transfer claim under Florida law. A creditor who cannot prove that a debtor acted with actual intent to defraud can still avoid a transfer by showing the debtor received less than reasonably equivalent value in exchange and was insolvent at the time. The concept also functions as a defense: a transferee who gave the debtor reasonably equivalent value in good faith is protected from avoidance even if the debtor had fraudulent intent.

Florida’s fraudulent transfer statute uses the term in three separate provisions, each with a different function. Section 726.105(1)(b) makes a transfer voidable if the debtor did not receive reasonably equivalent value and was left undercapitalized or unable to pay debts as they came due.

Present creditors have a separate path under the constructive fraud provision of the statute. A transfer made without reasonably equivalent value is voidable if the debtor was insolvent at the time. The good-faith transferee defense provides a complete shield for a transferee who gave the debtor reasonably equivalent value and acted without knowledge of the debtor’s fraudulent purpose.

What Counts as Value

Florida Statute section 726.104(1) defines value broadly. Value is given for a transfer if property is transferred or an antecedent debt is secured or satisfied in exchange. Payment of money, delivery of goods, performance of services, and satisfaction of a pre-existing debt all constitute value under the statute.

One important exclusion applies. An unperformed promise to furnish support to the debtor or another person does not constitute value unless the promise was made in the ordinary course of the promisor’s business. A family member’s vague commitment to care for the debtor in exchange for a transferred asset is not value under the statute.

The statute also establishes a safe harbor for foreclosure sales. Section 726.104(2) provides that a person gives reasonably equivalent value if the person acquires the debtor’s interest in an asset through a regularly conducted, noncollusive foreclosure sale or execution of a power of sale under a mortgage, deed of trust, or security agreement. The foreclosure safe harbor means that a buyer at a properly conducted foreclosure sale cannot be sued as a fraudulent transferee regardless of the price paid, provided the sale was noncollusive and followed applicable procedures.

Equivalent Does Not Mean Equal

Reasonably equivalent value does not require dollar-for-dollar equality. Courts evaluate whether the value received was reasonable under the circumstances, not whether it matched the precise fair market value of the asset transferred. A debtor who sells property at a modest discount in an arm’s-length transaction has received reasonably equivalent value even if the sale price was below appraised value.

Timing affects this analysis. Property sold under time pressure or financial distress will predictably sell for less than property marketed under normal conditions. Courts recognize that distressed sales produce lower prices and do not automatically treat a below-market price as evidence of inadequate value.

The comparison is between what went out and what came back. If a debtor transfers a $500,000 asset and receives $450,000 in cash, the exchange is likely reasonable. If the debtor transfers the same asset and receives $100,000, the disparity suggests the transfer lacked reasonably equivalent value.

The Creditor Perspective

Courts have debated whether to assess value from the debtor’s perspective or the creditor’s perspective. The distinction matters in asset protection planning because the debtor may receive something of genuine economic worth that is nevertheless beyond the creditor’s reach.

The Eleventh Circuit addressed this question in a case arising under Florida law and determined that transfers were not made for reasonably equivalent value when they drained assets otherwise available to creditors. Under this analysis, the value received must be accessible to creditors to count. An ownership interest that the creditor cannot levy or garnish does not satisfy the statute’s requirement.

This creditor-perspective approach has significant implications for common asset protection strategies. A debtor who contributes cash to an LLC in exchange for a membership interest may argue that the LLC interest has equal economic value. From the creditor’s standpoint, however, the LLC membership interest may be protected by Florida’s charging order limitation, making it practically unavailable for collection. If the court adopts the creditor’s perspective, the exchange does not constitute reasonably equivalent value because the creditor lost access to an exposed asset and received nothing collectible in return.

The same logic applies to converting non-exempt cash into an exempt annuity or funding a retirement account. The debtor receives a financial product of equivalent or greater economic value, but the creditor has lost the ability to collect from those funds. Whether courts consistently apply the creditor perspective remains unsettled, and the analysis may vary depending on the type of fraudulent transfer claim asserted.

Constructive Fraud and the Two-Part Test

Constructive fraud under Florida law does not require proof that the debtor intended to cheat creditors. The creditor must establish two elements: the debtor transferred assets without receiving reasonably equivalent value, and the transfer left the debtor insolvent or unable to pay debts.

Section 726.105(1)(b) applies to both present and future creditors. A creditor whose claim did not exist at the time of the transfer can still challenge it if the debtor failed to receive reasonably equivalent value and was left with unreasonably small assets relative to a business or transaction the debtor was about to enter. Alternatively, the creditor can show the debtor intended to incur or reasonably should have believed debts would exceed the ability to pay.

The constructive fraud provision for present creditors requires proof of actual insolvency. The creditor must show the debtor’s total debts exceeded total assets at fair valuation at the time of the transfer or that the transfer itself caused insolvency. This provision is narrower than the general constructive fraud path because it does not require proof of the debtor’s business circumstances, but it does require a balance-sheet insolvency finding.

Both provisions share the same threshold question: did the debtor receive reasonably equivalent value? If the answer is yes, the constructive fraud claim fails regardless of the debtor’s financial condition.

The Good Faith Transferee Defense

Section 726.109(1) protects a transferee who took in good faith and for reasonably equivalent value from avoidance under the actual fraud provision of the statute. Both elements must be satisfied. A transferee who paid fair value but knew the debtor was transferring assets to defraud creditors cannot claim the defense. A transferee who acted in good faith but paid a fraction of fair value also fails.

The transferee bears the burden of proving both good faith and reasonably equivalent value. The creditor does not need to disprove the defense in the initial complaint. Courts have held that good faith is an affirmative defense that must be raised and proven by the transferee during the course of litigation.

Even when the defense does not fully apply, a good-faith transferee retains certain protections under section 726.109(4). A transferee who acted in good faith is entitled to a lien on the transferred asset or a right to retain it to the extent of the value actually given to the debtor. A transferee who paid $200,000 in good faith for an asset worth $500,000 can retain a $200,000 interest even if the transfer is otherwise avoidable.

Insider Transfers and Antecedent Debts

Transfers to insiders receive heightened scrutiny. Section 726.106(2) makes a transfer to an insider voidable if it was made for an antecedent debt while the debtor was insolvent, provided the insider had reasonable cause to believe the debtor was insolvent. Family members, business partners, and entities controlled by the debtor qualify as insiders under the statute.

An antecedent debt is a pre-existing obligation. Paying back a family loan is a transfer for an antecedent debt. The transfer may have given the insider reasonably equivalent value in the sense that a valid debt was satisfied, but section 726.106(2) treats this category of transfer differently. The insider’s knowledge of the debtor’s insolvency removes the protection that would otherwise apply.

Three statutory exceptions shield insider transfers from avoidance under the heightened-scrutiny provision. The transfer is protected if the insider gave new value to the debtor after the transfer, if the transfer was made in the ordinary course of business between the debtor and the insider, or if the transfer was part of a good-faith effort to rehabilitate the debtor and secured present value given for that purpose.

Present Value and Timing

Section 726.104(3) defines present value as an exchange intended by both parties to be contemporaneous and that is in fact substantially contemporaneous. The requirement prevents a debtor from claiming value based on a promise of future payment that never materializes.

A debtor who transfers real property today and receives payment next month has not received present value. The exchange must be substantially simultaneous. Standard commercial closings where payment and deed delivery occur at the same time satisfy this requirement even if minor administrative steps extend a few days.

The present value requirement also reinforces the distinction between arm’s-length transactions and asset protection maneuvers. A sale to a legitimate buyer at closing is a present-value exchange. A transfer to a family-controlled LLC with a promissory note for future repayment is not, because the exchange is neither intended to be contemporaneous nor substantially simultaneous.

Badges of Fraud and Value

Reasonably equivalent value intersects with the badges of fraud analysis under section 726.105(2). One of the enumerated badges is whether the consideration received by the debtor was reasonably equivalent to the value of the asset transferred. A court evaluating actual intent may consider inadequate value as circumstantial evidence of fraud, even if the constructive fraud elements are not independently established.

Inadequate value standing alone may not prove fraudulent intent. Combined with other badges—such as a transfer to an insider, concealment, or transfers made while the debtor faced a lawsuit—a below-value exchange strengthens the inference that the debtor intended to place assets beyond creditors’ reach. The statute of limitations for challenging the transfer is four years from the date of transfer or one year from discovery, whichever is later.