Voidable Transactions Article by Jay Adkisson for 2023
Article 2023 Articles2023
Debtor's Late Transfer To Tenancy By The Entireties Fails In Paulsen
♦ This case, Paulsen v. Olsen, serves as a stark reminder that tenancy by the entirety (TBE), while a powerful asset protection tool, is not a foolproof shield against creditors, especially when used after a claim has arisen. Here's a breakdown of the key takeaways: 1. TBE is not a magic bullet for pre-existing debt: The Paulsens attempted to shield their home from McHenry Savings Bank's judgment by transferring it into TBE. However, the court found that this transfer was done with the "sole intent to avoid the payment of debts" and therefore voided the transaction. This case highlights the crucial distinction between using TBE for asset protection before a creditor's claim arises and using it after a claim has materialized. 2. Timing is everything: The court emphasized the timing of the transfer, noting that it occurred shortly after McHenry Savings Bank sued James and his son. This timing strongly suggested that the transfer was motivated by a desire to avoid the bank's claim. This underscores the importance of implementing asset protection strategies proactively, before any potential creditors come knocking. 3. "Badges of fraud" can be used to prove intent: The Paulsens argued that the court should not consider "badges of fraud" (factors that suggest fraudulent intent) under the Illinois TBE statute. However, the court rejected this argument, stating that these factors could be used to establish "sole intent" to avoid debt. This means that even if a debtor claims a different motive for the transfer, the court can still consider factors like timing, the debtor's financial situation, and the relationship between the parties to determine if the true intent was to defraud creditors. 4. Estate planning defense is often ineffective: The Paulsens attempted to argue that the transfer into TBE was for estate planning purposes. However, the court saw through this argument, finding it to be an "after-the-fact concoction" to avoid the "sole intent" requirement. This demonstrates that courts are often skeptical of estate planning defenses when the timing of the transfer suggests a motive to avoid creditors. 5. Fraudulent conversion vs. fraudulent transfer: The article explains the difference between fraudulent conversion (converting non-exempt assets into exempt assets) and fraudulent transfer (transferring assets to a third party). While the trustee could have challenged the transfer on fraudulent transfer grounds, the Illinois TBE statute provided a more direct route to unwind the conversion. 6. TBE can be an effective asset protection tool, but only when used strategically: The article acknowledges that TBE can be a valuable asset protection strategy, but only when used before any claims arise and when both spouses are not subject to the same creditor's claim. This case serves as a cautionary tale for those who attempt to use TBE as a last-minute solution to avoid creditors. In conclusion, Paulsen v. Olsen provides a valuable lesson for anyone considering using TBE for asset protection. While TBE can be a powerful tool, it is not a magic bullet. It is crucial to implement asset protection strategies proactively and to understand the potential limitations of TBE in the context of pre-existing debt. ♦
Attorneys Fees Awarded For Fraudulent Transfer Deemed Not Dischargeable In Kruse
♦ This is an article about the legal implications of fraudulent transfers in bankruptcy cases. Here's a breakdown of the key points and some additional insights: Key Takeaways: Fraudulent Transfers Can Backfire: The case of Kruse v. Weller demonstrates that attempting to shield assets through fraudulent transfers can lead to worse consequences than doing nothing at all. Weller's efforts to avoid Kruse's judgment resulted in a larger debt due to attorney fees that were deemed non-dischargeable in bankruptcy. Intent Matters: The bankruptcy court focused on Weller's intent to defraud Kruse, not on his reliance on bad legal advice. This highlights the importance of understanding the legal consequences of actions, even when relying on professional counsel. Attorney Opinion Letters: While opinion letters from attorneys can't negate intent in fraudulent transfer cases, they might help mitigate punitive damages. Non-Dischargeable Debts: Debts that are not dischargeable in bankruptcy can have a devastating impact on debtors, making it difficult to recover financially. Additional Insights: The Importance of Transparency: The article emphasizes the importance of transparency and honesty in financial dealings. Attempting to hide assets or deceive creditors can lead to serious legal repercussions. Seeking Professional Advice: It's crucial to consult with experienced legal professionals before engaging in any asset protection strategies. A qualified attorney can help you understand the risks and potential consequences of your actions. The Role of Bankruptcy Law: Bankruptcy law is designed to provide debtors with a fresh start, but it's not a tool for escaping legitimate debts. The courts are increasingly vigilant in preventing debtors from abusing the system. Overall, this article provides a valuable lesson for anyone considering asset protection strategies. It underscores the importance of understanding the legal implications of your actions and seeking professional advice before making any decisions. ♦