What is a “Fraudulent” Transfer in California?

The basic goal behind California’s Uniform Fraudulent Transfer Act (UFTA) is to prevent debtors from “giving away” their assets before creditors can get to them. Just before filing for bankruptcy, a debtor may attempt to give his or her home or other properties to a relative. A debtor may also attempt to sell property at a bargain price. These types of transactions are illegal under California law, and may give rise to an action by creditors to void the transaction, or treat it as if it never happened.

Under the UFTA, a transfer may be fraudulent whether the creditor’s “claim” arose before or after the transfer was made or the obligation was incurred. A “creditor” is defined to mean a person who has a claim.” A “claim” means a right to payment, whether the right to payment has been ordered by a judge or is disputed. Therefore, a debtor’s transfer could be deemed fraudulent under the UFTA even before a lawsuit has been filed by a creditor.

Two Types of Fraudulent Transfers

There are two types of fraudulent transfers–actual fraud and constructive fraud. Actual fraud requires the specific intent to defraud a creditor. The typical scenario involves a debtor who donates his or her assets, typically to an “insider” who is a friend or family member, and leaves nothing to pay his or her creditors. The court will consider a number of factors in determining whether intent to defraud has occurred, including, whether the transfer or obligation was disclosed or concealed, whether the transfer was of substantially all the debtor’s assets, and whether before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit.

Constructive fraud does not require proof of an actual intent to hinder or delay a creditor’s rights. Rather, it looks to the underlying economics of the transaction to determine whether a fraudulent transfer has occurred. For example, where the debtor was insolvent and did not receive reasonably equivalent value for the property transferred, the transfer may be deemed fraudulent.

Once a transfer has been deemed fraudulent under the UFTA, the law provides several remedies for both present and future creditors. If the creditor has obtained a judgment on a claim, the creditor may attach the asset transferred or the proceeds from a sale. If a claim has not been reduced to judgment, the fraudulent transfer may be “voided” and treated as if it never happened. The creditor can also obtain an injunction against further disposition of the asset by the debtor.

Fraudulent Transfer Lawsuits

There are many different scenarios that can lead to a fraudulent transfer lawsuit other than the actions of a simple debtor and creditor. Innocent buyers thinking they were making a great investment as well as trustees and administrators may be liable for their part. Speaking with a trusted and knowledgeable fraudulent transfer attorney is the best line of defense. Alternatively, an experienced fraudulent transfer attorney is also needed if you believe you have a claim under the UFTA. Wherever you stand, the attorneys at Boyd Law know this area of law well. Contact Boyd Law today to discuss the details of your case.