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Understanding Fraudulent Transfers Can Help You Collect on Your Judgment


Asset protection is a valuable, useful and legal way to protect assets from creditors. But if it’s not done the right way, it can become a fraudulent transfer. Knowing the difference can be the difference between protecting your assets, and losing them.

What Side Are You On?

When it comes to fraudulent transfers, there really are two sides to the coin.

On the one hand, you may be the person or business that is seeking to protect your assets from a lawsuit or a judgment. But on the other hand, you could be the party that has won a business litigation lawsuit, and now you are seeking to collect on your judgment. Lo and behold, the liable party suddenly has no assets or property to collect from. Showing that the liable party illegally moved or transferred assets can allow you to collect on a judgment you normally would have a difficult time collecting on.

What a Fraudulent Transfer Looks Like

Usually, a fraudulent transfer goes like this: A party knows that it is liable for, or will soon be liable for, the payment of a judgment to another party. Seeking to avoid payment, the party transfers assets and property. Maybe the assets are re-titled in another company name. Maybe property is sold to friends, family or business partners on a friendly understanding that the property will be sold back later. Money may be sunk into an asset that is not liquid, or where there are multiple owners.

Factors to Determine Legitimacy

How does the law tell when a transfer is legitimate, and when it isn’t?

One factor is timing. The closer a transfer occurs to a judgment being entered, the more likely that the transfer will be seen as fraudulent. It is always best to safeguard assets before any claim is pending or threatened at all, if possible.

Courts will also see if you received adequate and fair value for any property that you sold. If you transfer your entire business to your mother for $10, it becomes pretty obvious that this was not a real sale. It was just a vehicle to try to hide the asset.

Who you sell or transfer property to, will also matter. The closer someone is to being an “insider,” the more likely it is that the transfer will be seen as fraudulent. For example, friends, family members, business partners, or related corporate entities, will all be seen as insiders.

Clawing Back Fraudulent Transfers

A fraudulent transfer can be undone by the court, and clawed back from the person or entity that received the property. This can be a valuable vehicle to allow a party to collect on a judgement, even when the other side alleges that they do not have the assets to pay a judgment.

Whatever your business law problem may be, we can help. Call the West Palm Beach business litigation lawyers at Pike & Lustig for help today.



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