Fraudulent transfers are one way in which creditors can set aside a transfer by a debtor to another person or entity. They occur when the debtor either makes a transfer of assets with the intent to defraud his or her creditors or, in some states, when a debtor makes a transfer while insolvent or when that transfer makes the debtor unable to pay all of his or her debts to the creditors.
The easiest circumstance to picture fraudulent transfers is when a person gets sued and immediately transfers all of his assets to his brother, thus making him unable to pay on any judgment from the creditors. This situation would almost certainly be found to be a fraudulent transfer, but there are other, less obvious, circumstances where transactions may be voidable by the creditor under fraudulent transfer laws.
There are two types of fraudulent transfers. The first type is the intentional fraudulent transfer. This occurs when a person makes a transfer of his assets in order to defraud creditors. As there is an intent aspect of this, courts will look at the circumstances surrounding the transfer to determine, by a preponderance of the evidence, that it was more likely than not that the debtor intended to defraud the creditors. The criteria the court will look at are called the “badges of fraud.”
The second type of fraudulent transfer is called a constructive fraudulent transfer. This type of fraudulent transfer is only available in a handful of states and the extent to which it is available also varies between states. In North Carolina, constructive fraudulent transfers are possible with regard to transfers made without reasonably equivalent value in exchange for the transfer and the debtor either knew or believed he would incur debts beyond his ability to pay.
In order to make a fraudulent transfer claim, the burden of proof is on the creditor who has a valid debt owed by the debtor. Therefore, the creditor must not only prove the validity of the debt but also that the fraudulent transfer occurred.
An interesting note about fraudulent transfer laws is that they’re different between states, and therefore, you cannot predict through your own state laws how a court will decide if you’re dealing with a debt that is owed across state lines or internationally. If a court in one state decides that a fraudulent transfer occurred, that decision is upheld in every other state because of the Full Faith and Credit Clause of the United States Constitution.
In conclusion, fraudulent transfers are not a criminal offense. Instead, they’re a tool for creditors to set aside a transfer of assets in order to allow the creditors to be paid on the debt they’re owed.
For more information on fraudulent transfers or help defending against fraudulent transfers, please contact us at firstname.lastname@example.org or (919)912-9640.