Protecting Your Assets Without Making Fraudulent Transfers

What are Fraudulent Transfers?

Asset protection planning is best done before you have a legal or financial problem. If you wait until these issues occur and then create an asset protection plan, you may be perceived as engaging in a fraudulent transfer.

Fraudulent transfers are asset transfers done in the hopes of evading some kind of financial obligation or debt.
There are two types of fraudulent transfers. An intentional fraudulent transfer is made with the intent to hinder, delay or defraud a creditor. A constructive fraudulent transfer happens when you do not receive “reasonably equivalent value” in an exchange and as a result you have inadequate assets to pay your bills.

On the other hand, transfers made for legitimate estate planning reasons should not be viewed as fraudulent. Transfers to a spouse or one’s children have traditionally been looked upon suspiciously but since they are also used for legitimate estate planning, transfers and gifts which are consistent with valid estate planning, they should be viewed as lacking the requisite intent to defraud a creditor. 

Generally, when courts consider whether or not assets have been transferred fraudulently, they look at all the facts and circumstances of the situation and the credibility of the debtor-transferor. Motivation to benefit family is important to rebut an inference that the transfer was done with the intent to avoid the payment of creditors.  Just the existence of a transfer without other suspicious activities is generally insufficient to establish fraudulent intent.

The ideal time to protect assets is before there are any potential creditors. That way transfers into a plan do not fall within the fraudulent transfer statutes. Making transfers when a lawsuit is imminent or pending or when you have outstanding financial obligations makes the outcome of a legal challenge less certain. The success of the asset protection plan will depend on your ability to show remaining solvency and a legitimate purpose for the arrangement.

If you live in Orange County, California or the surrounding areas and have questions about protecting your assets while having debts and financial obligations, contact the estate planning and asset protection lawyers at OC Wills & Trust Attorneys by calling (949)288-3598 for a consultation.