Fraudulent Transfer Statute Of Limitations: When Does The Clock Start?
All causes of action are subject to a “statute of limitations” which refers to a time limit on lawsuits. The statute of limitations for a creditors’ fraudulent transfer actions is complicated. Most fraudulent transfer actions are subject to a four year statute of limitations (“SOL”). Creditors cannot attack transfers, or conversions, made over four years ago. Some fraudulent transfers are subject to only a one year SOL. The one year SOL applies, for example, to transfers or conversions where the debtor had actual intent to defraud creditors.
Where the creditor can show actual intent to defraud the fraudulent transfer action must be brought one year from the date of the transfer or one year from the time the transfer could reasonably have been discovered by the claimant. The one year SOL addresses transfers which the debtor makes in secret and tries to hide from creditors. A creditor has one year to bring a fraudulent transfer action after the time the debtor discloses the transfer or otherwise removes the veil of secrecy even if the secret transfer is more than four years old.
Most creditors do not discover that a debtor made a fraudulent transfer with intent until after the creditor gets a judgement and engages in discovery of the debtor’s finances in aid of execution through depositions and document review. Assume that a debtor transferred an asset four or more years ago with intent to hide the asset from a particular creditor, and that the transfer was not hidden or made in secret. The creditor did not discover the transfer until after it got a judgment. The creditor had no relationship with the debtor four years ago, and reasonably, it could not have discovered the transfer until after it got the judgment.
When does the one year SOL start: does it start from the date of the intentional transfer or does it start from the date this particular creditor found out about the transfer in the course of discovery in aid of execution?
A couple months ago a Florida appellate court said that the one year SOL applicable to fraudulent transfer runs from the time the transfer could have been discovered by anybody, not from the time the transfer was discovered post-judgment by a particular creditor. Transfers openly made are subject to a four year SOL even if the particular creditor could not reasonably find the transfer until it took discovery in aid of judgment collection. The court cited a prior bankruptcy case which reached the same conclusion. 2011 WL 2028913
