Law Offices of James W. Mallonee, P.A.
Port Charlotte 941-206-2223
Venice 941-207-2223
Helping individuals & families across Florida with their legal matters since 2005

Transferring Property to Avoid Creditors

In a previous article I provided a list of assets exempt from the claims of creditors under Florida law. That same article also warned of the potential pitfalls of transferring property with the intent to avoid a creditor. The Florida legislature created Chapter 726, which is appropriately known as Florida’s “Uniform Fraudulent Transfer Act” (the “Act”) to deal with those situations where property is transferred from one individual to another with the intent to avoid a creditor’s claim on such property. This article will explain the Act and provide some insight as to what is likely to cause a property transfer to be viewed as fraudulent.

The Act provides protection to both future and present creditors when a transfer of property is made and an obligation incurred when the person making the transfer or obligation did so with the actual intent to hinder, delay, or defraud any creditor or did not receive a reasonably equivalent value in exchange for the transfer or obligation. The difficulty in enforcing this provision of the Act is what is “intent” and how is it determined. Usually, intent is measured by a person’s conduct and actions. This can be very difficult to measure and requires evidence to be presented before a court of law of a person’s actions (e.g. witness testimony or signed written documents by the debtor). Fortunately, the legislature saw fit to provide factors in the Act to assist in measuring intent.

In determining actual intent the Act considers any transfer that is made to a relative, managing agent of the debtor, general partnership or corporation in which the person transferring property is a partner of the partnership, director or officer of a corporation or its affiliates or a relative of the person receiving the property. In addition, the Act states that a factor showing intent may be established when a person retains possession or control of the property transferred and the debtor had been sued or “threatened with suit.” The Act also considers intent to defraud another when a person removes or conceals assets or transfers assets to another without receiving a reasonably equivalent value for the asset transferred or the amount of the obligation incurred. The Act provides other measuring factors of intent, but the examples explained in this paragraph are the majority that affects most people.

Examples of fraudulent transfers are deeding or selling property to a relative, corporation, Limited Liability Company or partnership in advance of known litigation or an obligation that may not have been filed or executed at the time of the transfer. Another example is the transfer of property to another once litigation has been filed or a judgment rendered against you. Although these examples are not exhaustive, they do serve as themes that provide adversaries with reasons to suggest to a court that such transfers should be voided.

What about loans to family members or partnerships or corporations. When any loan of goods and personal property shall be pretended to have been made to any person and shall have remained in place for 2 years without demand on the part of the pretended lender, the transaction shall be considered fraudulent unless such loan, reservation or limitation of the use of the property were declared by will or deed in writing proved and recorded

If a transfer is deemed fraudulent by the Court what remedies are available to a creditor? Generally speaking, the court can make the transfer voidable to the extent necessary to satisfy the creditor’s claim. The Court can also attach a creditor’s interest to the property transferred and issue an injunction against further disposition by the debtor or a transferee, or both, of the asset transferred and may approve the sheriff selling the assets at auction.

As you can see, the Act basically states that any transfer of property to another with the intent to hinder or delay a creditor of any type is reviewable by the court. But what if you transferred property to your children five years ago and had no idea at the time of the transfer that someone would sue you for damages.

The Act does provide some relief with regard to timeliness in filing a claim. Most claims for a fraudulent transfer must be brought within the later of 4 years after the transfer was made or within 1 year after the transfer or obligation was or could reasonably have been discovered by a creditor. In the event the person making the transfer made it to an insider and the insider had reasonable cause to believe that the debtor was insolvent, in those situations, a creditor will be limited to 1 year from the date of the transfer or obligation occurred.

Suppose you purchased property that is the subject of a fraudulent transfer, can the sale or transfer be voided and taken away from you? A transfer or obligation is not voidable when a person purchases such property without knowledge of the pending commission of a fraudulent transfer and the purchase was for a reasonable value.

To prevent the possibility of any transfer of property being reviewed by the court as fraudulent, it has been suggested that if you are aware that you might be sued due to some previous act, or are currently involved in litigation and you attempt to transfer assets from a non-exempt to an exempt status or to a relative, you may run the risk of having that transfer voided. The exceptions include those transactions to bonafide purchasers for the equivalent value of the property sold.

If you have any concerns about a recent transfer of property and there is a possibility of being sued, you should consult an attorney and learn about the consequences of your transfer being voidable.

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