Transfers To Your Spouse Likely Reversed As Fraudulent Conveyances

Jon Alper Fraudulent Transfers

This Connecticut case caught my attention, not because it establishes new law, but because it addresses a common asset protection mistake. Many of my new clients believe they may protect their assets by simply transferring non-exempt assets to their non-debtor spouse. As this case illustrated, the answer is almost always, “no”.

The case involved a judgment against a husband for his personal guarantee of a non-performing commercial loan. Shortly before the bank called the loan the husband transferred real estate, security accounts, and company interest to his wife. He attempted to defend the transfers as part of his financial planning. The wife defended on the grounds that she had no knowledge that the conveyances to her were part of a scheme to protect the money from the bank.

The court had no trouble setting aside the transfers as fraudulent conveyances  under the uniform fraudulent transfer act (same law enacted in Florida). The court noted, among other things, that the husband was insolvent at the time of the transfers, given the guarantee of the defaulted loan, and that the husband received no consideration. The court did not accept the financial planning, or estate planning, excuses. Nor did the court excuse the wife’s obligation to return the assets based on the wife’s defense of ignorance. Whether the wife had actual or constructive knowledge of the husband’s intent was irrelevant to her liability as a transferee.

I think this case illustrates again that debtors should not involve their spouses in any self-help asset protection. Transfers to spouses are most suspect for many reasons including that the debtor spouser effectively retains control and benefit of property through marriage and because the transferee, non-debtor spouse, is assumed to be cooperating with the debtor avoidance of judgment. Courts have consistently rejected arguments that the non-debtor spouse already has a half-interest in the asset as marital property or that the non-debtor spouse is offering either love and affection or continued marriage as good and valuable consideration for the transferred asset.

My general advice to all asset protection clients is this: do not convey assets to your spouse, your children or your friends because you do not want to make these people lawsuit defendants as a result of your own problems.

The Connecticut case is People’s United Bank v. Lilly, 2012 WL 684573

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Alper Law is a Florida law firm focusing on asset protection for businesses and individuals.