Non-Debtor Spouse May Be Liable For Fraudulent Transfer To Entireties Account

Jon Alper Bankruptcy, Fraudulent Transfers

I’ve warned many clients against making fraudulent transfers of money to their non-debtor spouse or to tenants by entireties with their spouse. A creditor may get a general money judgment against the non-debtor spouse for the value of assets transferred. The transfer to the spouse risks making the spouse a new defendant in the creditor’s judgment collection.

A recent Florida bankruptcy case (2019 WL 1984005) discussed the potential liability of the non-debtor spouse in a fraudulent transfer; the case also discussed possible equitable defenses the transferee spouse could assert. In this case, a bankruptcy debtor transferred his own money to an account titled tenants by entireties. The non-debtor spouse contributed no money to the account, wrote no checks from the account, and she did not receive account statements nor manage the account.

The court said that equitable principals are the guide to fraudulent transfer remedies under applicable Florida Statute 56.09. The reversal of a fraudulent transfer from a debtor spouse to tenants by entireties of real property or tangible personal property is simply accomplished by the conveyance of title back to the debtor/transferor. The remedy is more complicated when the debtor transfers intangible property such as cash.

The general rule is that the non-debtor spouse is liable for the amount of money received (or, a half-interest in money titled in an entireties account). Some courts in other states excluded money that the non-debtor spent on “necessities.” The bankruptcy court in the instant case said principals of equity worked in favor the non-debtor spouse. The court said that it would not be fair to make the spouse liable when the spouse did not control or use the account and had no part is setting up the entireties account or transferring the funds.

There is substantial legal risk in making fraudulent transfers of money to a tenants by entireties account. However, the truly innocent spouse can seek equity in avoiding liability.

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