When Does Asset Protection Become a Fraudulent Transfer of Property?

For those looking to protect assets from creditors, there is often confusion between asset protection and fraudulent transfers. Asset protection is smart, proactive, prudent, and protects you, your family and your business. Fraudulent transfers are illegal and can get people in trouble. But practically, what is the difference?

Both asset protection and fraudulent transfers are done with the intention of protecting and preserving assets from creditors. But the similarities end there.

The Element of Time

Asset protection and fraudulent transfers differ in two main ways: time, and intent.

Asset protection is generally done when there is no, singular, pending lawsuit, claim or judgment, against someone. That is, at the time that the asset protection is done there is nobody with a current legal right to collect on that asset, or any asset, of the person doing the asset protection.

Imagine that you transfer property to a creditor-safe account. At the time you do that, your business has a commercial lease, so the business is technically a creditor. But you are current with the lease, so the landlord has no present ability to collect against you or take any of your property, and there is no current default.

That’s valid asset protection.

But now imagine that you default on the lease, and the landlord files a lawsuit against you, and then you decide to do “asset protection” by moving property or hiding it. Now, there is a current claim and a pending lawsuit, and thus, with that knowledge, it becomes illegal to move or convert your property the way that you did.

So, depending on the circumstances, the same action could be valid, legal asset protection, but it could also be a fraudulent transfer.

Retaining Value

Another aspect of valid and legal asset protection is that the property retains its value. In fraudulent transfers it often does not.

So, for example, selling your boat to mom for $200 would likely be a fraudulent transfer—you’re not getting anywhere near value, and that’s likely not a transaction you would have made in the absence of some claim, lawsuit or judgment being brought against you, and you made the transaction with mom—hardly a person at arms-length to you in the contract.

What About Intent?

Intent also makes a difference, but intent is often closely tied to time.

If you transfer or dilute or destroy or sell assets, with the intent to evade a specific creditor, that may be seen as a fraudulent transfer.

One way we prove intent is by time—specifically, how close to a lawsuit judgment, or creditors claim, was the transfer of assets made or completed? The closer in time, the more likely a court will assume that the transfer was not asset protection, but was a fraudulent transfer.

Where intent is concerned, the person or party transferring the assets, will have to show a valid reason, or a reason unrelated to evading a creditor, as the reason why property was moved, transferred or liquidated.

Questions about protecting your assets, or collecting on someone else’s?  Call our Fort Lauderdale business litigation lawyers at Sweeney Law P.A. at 954-440-3993 for help.

Sources:

flsenate.gov/laws/statutes/2016/726.106

casetext.com/statute/florida-statutes/title-xli-statute-of-frauds-fraudulent-transfers-and-general-assignments/chapter-726-fraudulent-transfers/section-726105-transfers-fraudulent-as-to-present-and-future-creditors/analysis?citingPage=1&sort=relevance