Legal-Ease: Protection against fraudulent transfers


LEGAL-EASE

By Lee R. Schroeder - Guest Columnist



Lee R. Schroeder

Lee R. Schroeder


The terrorist shooting in Orlando has dominated the news lately. Much has been made of the terrorist’s actions prior to the shooting, including apparently selling his home to a family member for $10 just days before his terrorist attack.

Apparently, the terrorist knew that there would be major financial assertions made against him or his estate (if he died) after the shooting. In order to try to protect his assets, such as his house, the terrorist essentially gave away almost all of the value of his house to a family member.

The terrorist’s plan can appear reasonable on its face, but it does not work as a matter of law.

When a transaction, typically the purchase of an asset in exchange for money, is completed and the item and money are exchanged, the transaction is done. However, certain situations, such as the terrorist’s house sale, are considered to be “fraudulent transfers,” which can literally sometimes be “un-sold.”

There are four primary types of fraudulent transfers. First, a transaction is fraudulent if the asset is transferred for less than fair market value and the transferring person is insolvent or will be insolvent after the transaction. In other words, if someone has a negative net worth, that person cannot give gifts to others before paying his or her creditors.

Second, a transaction is fraudulent if the asset is transferred to a creditor for less than fair market value and the transferring person is paying a creditor who is related (by family, close friendship or business affiliation) with the creditor and the transferring party is insolvent or will be insolvent after the transaction. This second type of fraudulent transfer also requires that the creditor being paid has reasonable understanding of the transferring person’s financial status.

Explained more simply, when people or businesses face financial pressure, those people have a tendency to pay certain people (usually family members and friends) to whom money is owed before paying other people (often credit card companies) to whom money is also owed. The law provides that all creditors need not be treated and paid equally, but if payments are going to be unequal, it better not favor family and friends of the debtor.

Third, fraudulent transfers include any transaction that the transferring person undertakes with an intent to “hinder, delay or defraud” any creditor. This type of fraudulent transfer includes transfers among various “shell entities” or through phony paperwork designed to hide money from creditors.

Fourth, fraudulent transfers include those where the transferring party receives less than fair market value, and the transferring person knows or should know that he or she is likely to be insolvent very soon. This is the type of fraudulent transfer that the Orlando terrorist undertook. The terrorist knew that he would soon have significant financial obligations (based upon his impending crimes), and he sold his house for less than it was worth.

Once any particular transaction is considered to be a “fraudulent transfer,” that transaction can often be literally be “un-done” through lawsuits.

Lee R. Schroeder
https://www.limaohio.com/wp-content/uploads/sites/54/2016/06/web1_Schroeder-Lee-RGB-2.jpgLee R. Schroeder
LEGAL-EASE

By Lee R. Schroeder

Guest Columnist

Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-523-5523. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.

Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-523-5523. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.

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