Deposit Into Entireties Accounts Of Profit Distributions: Is this Fraudulent Conversion?dividually Owned Company
Physician and attorney practices through corporations or LLCs can be owned only by licensed professionals. Therefore, the professional cannot own his business in most cases jointly with his spouse who is not also licensed in the same profession. Profit distributions from the professional practice are paid to the professional spouse who owns the business. These distributions are non-exempt money in the hands of the professional.
Most professionals and their spouse maintain joint financial accounts in order to achieve tenants by entireties protection of their personal money from potential creditors or claims against the professional related to his professional practice. When the professional deposits non-exempt distributions from his business in to his joint personal account the professional is depositing non-exempt money into an exempt entireties account. Is this deposit a fraudulent conversion of a non-exempt asset to an exempt account?
Most courts do not consider this common practice to be a fraudulent conversion. Fraudulent transfer law considers the context of debtors’ transfers. In cases where the debtor has established a practice of depositing profit distributions in to a joint account during a long-term marriage, continuation of the practice does not become fraudulent just because a judgment is entered. The answer is different if the debtor changed his personal financial arrangements when a claim arose or moved money secretly.
Fraudulent transfers and conversions depend on circumstantial evidence of the debtor’s intent. Maintaining financial arrangements established long before a legal problem arose, by itself, is usually not evidence of intent to evade creditor collection.
