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Fraudulent Transfers

A fraudulent transfer occurs when someone knowingly transfers away something of value to another in exchange for little or no value in return in order to prevent a present or future creditor from reaching it. Often times, the person or business transferring away the asset already has a judgment entered against it and is trying to shield assets. However, a creditor does not need to hold a judgment for a transfer to be considered fraudulent, it is enough that the creditor has a lawful claim against the debtor, including an unmatured right to payment.

How are Fraudulent Transfer Disputes Decided?

Fraudulent transfer actions are generally brought after a judgment has been entered against a defendant and after the creditor learns of the transfer(s) in a post judgment case known as Proceedings Supplementary. Fraudulent transfer claims provide creditors with a powerful tool to collect the money they are owed on a judgment. For example, a creditor can ask the court to prohibit future transfers and can also “undo” a fraudulent transfer that has already occurred when the transferred property is in hands of an innocent third party. In fact, there is no predetermined limit on what a court can do to help a creditor recover or avoid a fraudulent transfer. Transfers of stock, money, boats and jewelry have all been found to constitute fraudulent transfers. It is important to remember that not all transfers by a debtor are fraudulent. Unsurprisingly, the main question in fraudulent transfer cases is whether the transfer was “fraudulent”. Since the intent of the transferor is often difficult to determine, a balancing test is used in order to determine if the transferor had the fraudulent intent at the time he made the transfer. However, there are certain tell signs that a transfer may have been fraudulent.

What are the Telltale Signs That a Transfer may Have Been Fraudulent?
  • The transfer or obligation was to an insider.
  • The debtor retained possession or control of the property transferred after the transfer.
  • The transfer or obligation was disclosed or concealed.
  • Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit.
  • The transfer was of substantially all the debtor's assets.
  • The debtor absconded.
  • The debtor removed or concealed assets.
  • The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred.
  • The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred.
  • The transfer occurred shortly before or shortly after a substantial debt was incurred.
  • The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

The outcome of many fraudulent transfer disputes often turns on the credibility of the witnesses and the what any documents say. If suspect that a debtor has fraudulently transferred his assets in order to avoid paying a debt, if you have been sued for an alleged fraudulent transfer, or if are considering transferring assets as part of your estate plan, a general understanding of the law surrounding fraudulent transfers is not enough. It is important that you speak with a qualified Miami business lawyer who can thoroughly review any relevant documents, perform an appropriate creditor and debtor analysis and apply the applicable law on your behalf so that you can help protect your hard-earned property or recover what is rightfully yours.

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