Fraudulent Divorce: Can A Property Settlement Agreement Be Reversed As Creditor Fraud?

Generally, if a husband transfers non-exempt property to his wife in the face of a creditor’s claim or lawsuit, the transfer will be reversed a a fraudulent conveyance. From time to time people who anticipate a legal problem tell me that in the event they lose a lawsuit they will divorce their wives and give their property to their wife as part of the divorce. The legal issue is whether there can be a fraudulent divorce to avoid or delay creditors. Does the fact that the divorce settlement is approved by a court protect property transfers made pursuant to the settlement agreement?

I think most courts would find that there can be a fraudulent divorce and that transfers made as part of a divorce settlement can be set aside. The answer depends on the facts of each case. The court would have to decide if the divorce is an arms-length divorce or part of a marital conspiracy to protect family assets. Certainly, if the spouses continue to live together and or not maintain separate lives there is less chance of the property transfers surviving challenge. Transfers in exchange for release of marital rights such alimony are on firmer ground.

This question involves competing public interests. Courts protect dependent spouses. Property transfers to provide the dependent spouse sufficient assets to maintain their lifestyle serves that public purpose. Courts also tend to enforce their own judgments and grant creditors equitable remedies to collect their judgments.

I have not seen any Florida cases setting aside a divorce as a creditor fraud.

 

Last updated on May 22, 2020