What is a Fraudulent Conversion or Fraudulent Transfer?
Let’s discuss the difference between a fraudulent transfer and a fraudulent conversion. First of all, fraudulent transfer, also called fraudulent conveyance is when someone transfers his or her own non-exempt assets, such as cash, stock or real estate, with intent to delay or hinder collection by a creditor. The important thing to know is this is a civil remedy only. It is not a crime. You cannot go to jail for it.
Fraudulent conversion, on the other hand, is taking another person’s money or property and converting it for one’s own use or that of a third party who does not own it. Thus, fraudulent conversion, is a criminal matter.
With fraudulent transfer, the creditor’s only remedy, and this has been established by many appellate decisions, is to undo or reverse the fraudulent transfer. This means that the debtor is merely in the same position he was before he made the transfer.
Trusts and Fraudulent Conversion / Transfer
That is why domestic asset protection trusts do not tend to work very well. It is because a judge can easily undo the transfer. Whereas an offshore trust is outside of the local court’s jurisdiction. Your local court’s do not have the right to issue court orders to foreign trustees. So, an asset protection plan that involves a properly structured international trust can thwart the plaintiff’s attempt to seize your assets. Your opponent’s fraudulent conversion ruling end up as words on a worthless piece of paper. But your assets remain secure for your future use.
Taking assets that don’t belong to you and putting them into a trust, however is fraudulent conversion. Stealing assets in this manner it is a criminal matter and a responsible trustee will not knowingly accept such a transfer.
Civil Matter Only
So, the term fraudulent transfer or conveyance, as opposed to fraudulent conversion, sounds scarier than it really is. It is simply a civil matter not a criminal one. So, it’s usually better to do it, and then make them fight for it. Don’t just just roll over like a dead dog and leave the asset laying out there in the open. Put up fight. Make them work harder to take your assets than you had to work to earn them in the first place.
Fraudulent transfer laws are statutory, meaning they are written in the law books. And our local fraudulent transfer laws to not provide for criminal remedies. They do not give the ability to assess additional damages or fees against the debtor. Different jurisdictions have different laws. But if you want to avoid the issue altogether, set up an asset protection plan well before you need it. Moreover, because of the statute of limitations, if you do it early enough, a fraudulent conveyance claim will be denied by the courts.
Don’t Involve Friends and Family
Now, there are certain drawbacks to attempting fraudulent conveyances that involve friends or family members. These people will often end up in a fraudulent transfer lawsuit. So what a person ends up doing is dragging loved ones into their problems. That is, people who tried to help you by receiving your assets get stuck with huge legal bills. That will not be a happy conversation on Thanksgiving Day. So, don’t transfer to friends or loved ones. Don’t transfer to your spouse. Dragging your wife into a lawsuit does not boost the romance.
Attorneys and Accountants
We also get questions from attorneys and accountants whether they can get held liable for assisting a client in making a fraudulent conveyance. The answer here is no. For example, the Florida Supreme Court dealt with this issue specifically in a dispute between a debtor and a bank. The court held there is no liability for a third party, such as an attorney, accountant, or financial advisor in assisting or conspiring with a debtor to make a fraudulent conveyance.
In California, there may be discipline for attorneys assisting clients in a fraudulent transfer. To learn more, read our California fraudulent conveyance report. And that is why we have so many attorneys around the country referring their clients to us, as we do not have those concerns.
However, for attorneys, be careful that you only give legal advice. Because if you become a party to the conveyance you may have civil or ethical liability. For example, don’t put the conveyance from your client into your trust account, knowing that his intent is to avoid a creditor.
Do you have assets that you want to protect and you are not sure what to do with them? If you do, but you see that just giving them to someone else would get them into a transfer lawsuit, so just isn’t a good idea, use the number or inquiry form on this page. So, this concludes what to do and how the term differs from the term fraudulent conversion.
Last Updated on February 23, 2021