Transfer Of Zero Value Stock Cannot Be Challenged As Fraudulent

Often, a debtor will own an interest in real estate or business corporation/LLC that has no present value, but which the debtor anticipates will some day be worth significant money. Examples are upside down real estate or a start up business. These assets may be transferred to protect the anticipated future value from creditors even if there is presently a claim or lawsuit against the debtor.

A transfer of an asset with zero market value is not a fraudulent conveyance. This issues was discussed in a recent fraudulent transfer case where a debtor transferred to his wife shares of a start-up corporation after a creditor had established a claim against the debtor spouse. The court said that a transfer is fraudulent as to a creditor only if, among other things, the transfer was made without receiving reasonable equivalent value. The court concluded that the debtor’s stock had zero value, and that it is impossible to receive less than reasonably equivalent value for the transfer of an asset that is valueless. A debtor’s transfer of an asset that has no value cannot be reversed as fraudulent regardless of the debtor’s intent to protect the asset from creditors.

Last updated on May 22, 2020