Some debtors believe they can circumvent fraudulent transfer problems if they elicit the help of co-owners to transfer assets. An example would be when a debtor has a joint financial account with a non-debtor partner. The co-owner is not a spouse so the account is not an exempt entireties assets. The owner knows that a judgment creditor could garnish the account and take his share of account assets. The debtor also knows that if he transfers money out of the account in anticipation of a judgment that the transfer may be attacked under the fraudulent transfer statutes.
The debtor asks the co-owner to transfer or close the account. The co-owner may use the funds to purchase an exempt asset or to place the entire account in the name of a third party. The debtor believes that because the debtor, himself, did not make the transfer that he could not be “blamed” for making a fraudulent transfer or conversion of this non-exempt money.
The defense was considered in a recent court case involving fraudulent transfer issues. The court held that the fraudulent transfer and conversion statutes pertain to both direct and indirect transfers. When a joint owner of an account transfers the debtor’s money out of the account the debtor has made an indirect transfer of the asset which transfer may be reversed under the fraudulent transfer statutes.