Does Asset Appreciation After A Fraudulent Transfer Affect Transferee?

The fraudulent transfer statutes give the creditor the right to sue the transferee for the value of the asset transferred. A creditor may get a judgment against the initial transferee who receives the asset. One of my clients asked me whether an increase in value of the asset after the transfer leaves the transferee liable for increased damages. Does the transferee’s liability increase as the asset appreciates in value?

The statute expressly limits the transferee’s liability to the value of the asset received at the time of the transfer. If the asset appreciates following the, a court could also order the transferee to return the asset so that the creditor would get the benefit of appreciation. If the initial transferee has sold the asset to a third party the transferee is liable for the transfer-date value and not any appreciation.

However, the statute permits adjustments to the remedy as equity requires. This provision has been interpreted by courts to give transferee’s a credit for money they expended to maintain the asset while in their possession.

This question illustrates the general principal that fraudulent conveyances impose more risk for the transferee than for the debtor/ transferor. The debtor’s transfer cannot increase his liability to the creditor whereas the transfer imposes possible new liability on the transferee who otherwise would have no relationship with the transferor’s creditor.

Last updated on May 22, 2020