A fraudulent transfer or a fraudulent conversion, together called a fraudulent conveyance, is when someone transfers or converts a non-exempt asset, 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.
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.
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.
So, the term fraudulent conversion, transfer or conveyance 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.
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.
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 fraudulent conversion / transfer lawsuit, so just isn’t a good idea, use the number or inquiry form on this page.