Fraudulent transfers of money and properties usually happens right before or during a divorce, when greedy or vindictive individuals attempt to cheat their spouses out of their fair share of the marital assets. However, fraudulent conveyance can happen after the divorce judgment if a spouse is awarded properties in installments, rather than a lump sum. The leading case on this issue is Firmani v. Firmani (2000), in which the wife was awarded $55,000 for her interest in the marital home. She was paid $30,000 immediately as per the court's orders, but the rest was to be paid within 3 years after the divorce. In addition to not making the payments at all, the defendant transferred ownership of the home into a Family Partnership, right before the 3 year term expired.
The Appellate Division did not believe that this was mere coincidence, or that the defendant failed to recognize how this would effectively cheat his ex-wife out of the remaining payment. In its ruling, the Appellate Division cited the Uniform Fraudulent Transfer Act, which states that a “transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation. . . with actual intent to hinder, delay or defraud any creditor of the debtor.” In Firmani, there were just too many coincidences for the judges to think that this was a simple misunderstanding. Still, there are quite a few other “badges of fraud” that have to be examined before ruling a transfer as fraudulent. These factors include, but are not limited to:
- The transfer was to an insider.
- The debtor retained at least some control or portion of the property after the transfer.
- The transfer was deliberately concealed from the creditor.
- The value of the transferred property was reasonably equivalent to the value of the obligation incurred.
- The transfer occurred shortly before or after a substantial debt was incurred.
The list of factors is exhaustive, but not all of them need to be met in order to determine a fraudulent transfer. In Firmani, it was ruled that at least 5 out of 11 factors were met, and that was enough to prove the defendant's intent to deprive the plaintiff of her equitable distribution. The court rectified the situation by setting aside the transfer of the home, thereby giving her a chance to go after the defendant for the unpaid balance of her interest. This an important case for both parties in a divorce, since many couples have to work out a systematic payment plan for assets that cannot be liquidated right away. However, it can be tricky to comply with state laws, as well the terms of your divorce agreement. If you need legal advice about distribution or transfer of marital assets after a divorce, please speak with the attorneys of Villani & DeLuca, P.C.