Understanding Fraudulent Transfers in the Context of Judgments

When a creditor obtains a judgment against a debtor, they expect to collect what they are owed. However, some debtors attempt to evade payment by moving or concealing their assets. This is known as a fraudulent transfer—a deliberate effort to avoid satisfying a legal judgment.

What Is a Fraudulent Transfer?

A fraudulent transfer, sometimes called a fraudulent conveyance, occurs when a debtor moves assets to another person or entity with the intent to hinder, delay, or defraud a creditor. These transfers can take many forms, including:

• Gifting assets to a family member or friend to keep them out of reach of creditors.

• Selling assets at an unreasonably low price to make it appear as if they no longer own anything of value.

• Transferring property to a trust, shell company, or offshore account to create legal barriers against collection.

• Paying off certain creditors (such as friends or family) while avoiding obligations to others.

Fraudulent transfers are governed by both federal and state laws, primarily under the Uniform Fraudulent Transfer Act (UFTA) or its updated version, the Uniform Voidable Transactions Act (UVTA).

How Do Courts Determine a Fraudulent Transfer?

Creditors and courts look at several factors to determine whether a transfer is fraudulent, often referred to as “badges of fraud.” These include:

1. Was the transfer made to an insider? (e.g., a relative or business partner)

2. Did the debtor receive fair value in return? If an asset is transferred without adequate compensation, it raises suspicion.

3. Was the transfer concealed or done in secrecy?

4. Did the transfer occur after the creditor filed a lawsuit? A last-minute transfer is often seen as an attempt to evade collection.

5. Did the debtor retain control of the asset after the transfer? (e.g., transferring a house but still living in it)

6. Did the transfer make the debtor insolvent? If a debtor suddenly has no assets left, courts may presume fraud.

Consequences of Fraudulent Transfers

If a court determines that a transfer was fraudulent, it can take several actions to undo the scheme and allow creditors to collect:

• Reversing the transfer: The court may order the recipient to return the asset to the debtor’s estate so it can be used to satisfy the judgment.

• Holding third parties liable: If someone knowingly participated in a fraudulent transfer, they might be subject to legal consequences.

• Monetary damages: A court may order the debtor to pay additional damages if fraud is proven.

Defenses Against Fraudulent Transfer Claims

A debtor may argue that:

• The transfer was made in good faith and for legitimate reasons (e.g., selling an asset at fair market value).

• They did not intend to defraud creditors and had no knowledge of pending claims when the transfer occurred.

• The asset was exempt from collection under state law (e.g., homestead exemptions).

Preventing and Combating Fraudulent Transfers

Creditors can take proactive steps to prevent and challenge fraudulent transfers:

1. Conduct asset investigations before lending money or engaging in contracts.

2. File a lawsuit quickly if fraudulent transfers are suspected.

3. Use forensic accounting and legal discovery to trace hidden assets.

4. Request court injunctions to freeze assets before they can be moved.

Final Thoughts

Fraudulent transfers can be a major roadblock for creditors trying to collect a judgment. However, courts take these matters seriously and provide mechanisms to recover assets and prevent abuse. Whether you’re a creditor seeking to enforce a judgment or a debtor facing accusations, understanding fraudulent transfer laws is crucial.

If you suspect fraudulent activity, consulting with an experienced attorney can help navigate the legal process and protect your financial interests.

Lawrence Smith, 15 Post Drive, Roslyn , NY