Husband Transfers Car Title To Wife In Satisfaction Of Wife's Lien On The Car: Is This A Fraudulent Transfer?
Husband tells me his automobile is protected from creditors because his wife has a recorded lien on the title. The story is that when this man bought the car in February, 2005, he put this wife’s name on the title as a lien holder. He states he cannot recall how much, if any, money his wife loaned him from her separate funds to finance the purchase, and he has no record of periodic loan payments to his wife. This year, after this same man was sued, he man transferred the car title to his wife as a "repayment of her loan and in satisfaction of the lien", so he says.
Is this a fraudulent loan, and is the transfer of the car title to the wife a fraudulent conveyance? Probably. The creditor would have to show that the original lien and loan was fraudulent to creditors in order to invalidate the transfer of title in satisfaction of the lien. The creditor’s problem is that the original loan and lien are five years old and took place the statute of limitations for fraudulent transfers. If the original loan is not invalid then the debtor may be able to defend a fraudulent transfer attack on the conveyance of title this year to his wife. This debtor would be in better position if he had just left title in his name subject to the five year old lien.
I asked this man if he had spoken with his CPA about the tax treatment of his title transfer in 2010. The wife’s forgiveness of her loan and lien may result in 1099 income to the husband. I’m not sure if the wife can take a corresponding investment loss because I don’t know if the wife’s transaction qualifies as a business investment. Interesting question for the couple’s accountant.
