Reasonably Equivalent Value Required To Avoid Fraudulent Transfer
Fraudulent conveyance is always the largest issue in asset protection planning. A debtor has a strong defense to a fraudulent conveyance threat if the debtor can prove that he sold or transferred an asset for value. For example, if a debtor sells an asset to a third party and receives money or property in return the debtor is left with the equivalent amount of assets and the creditor is not harmed thereby. The question often is how much money does the debtor need to receiver for a transfer of asset in order to avoid allegations of a transfer to defraud creditors.
For fraudulent conveyance purposes, the test applied to a transfer is one of "reasonably equivalent value." ("REV"). REV is not the same as fair market value. A debtor is not expected to sell assets for full fair market value to avoid the taint of fraudulent conveyance. The law permits debtors to sell at a discount for whatever reason. There are a few court decisions which attempt to define REV in relation to fair market value. The general guideline is referred to as "the 70% Rule" which is that a transfer is fair if the consideration received is at least 70% of fair market value. People should plan on receiving more than 70% of FMV in order to better defend challenges of asset transfers.
After the transfer the debtor still has the problem of explaining what he did with the consideration he receives. The consideration for the transfer, whether it be 100% or 70% of fair market value, still has to be protected from creditors after the conveyance.
If a debtor transfers an asset which is exempt from creditors the creditor can transfer the asset for any amount of money, even for no money, without fear of attack under fraudulent conveyance statutes. There is no such thing as a fraudulent transfer of an exempt asset.
posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida
I am concerned about a judgment lien being placed against my homestead and being able to sell or refinance in the near future - as my wife and I want to travel. Question is: Can a relative - sister, brother or uncle purchase my house (paying off my mortgages) so that it is not in my name? There is very little, if any equity in the house, so I would get nothing but my freedom - and thats important to me. Is this any kind of fraudulent conveyance, since its being bought for its asessed value? I would like to do this before a lien is placed on the property - and a judgment could come as soon as a couple of weeks. Does it matter if the purchaser is a relative? This relative would be a cash buyer. I don't want to be tied to a house because of a lien and not being able to sell it, or not being able to make the payments and end up in foreclosure. I would however have to live in it for a while - paying them rent.
A Florida debtor took a 401 k loan and funds went into bank account for about 1 week and then debtor purchased a mobile home and plans to claim it as homestead in a Chapter 7. The transaction took place over 1 year ago. Is there any basis for objection to exemption or fraudulent transfer. This was done to lower total living expenses and not to defraud creditors