What Is Fraudulent Conveyance? – Fraudulent Transfers in Texas and Common Defenses

What Is Fraudulent Conveyance? – Fraudulent Transfers in Texas and Common Defenses

Can I Transfer Assets to Avoid Judgment?

You can transfer your assets to avoid a judgment against them. But, while there are many ways to transfer assets in the State of Texas, there are also many rules and restrictions. While you may be able to keep cash, a home, and personal property beyond the reach of debt collectors and judgments, you also want to avoid the type of gamesmanship the law is watching out for – such as treating a business like a personal piggybank and moving property to a friend or spouse.

In short, any transfer of assets in Texas must adhere to the Texas Uniform Fraudulent Transfers Act, Sections 24.001-24.0012. One of the harshest penalties associated with violating the TUFTA is creditors being completely free to undertake an end-run around your attempted transfer and seize your property.

What Is an Asset Transfer?

To understand fraudulent conveyance versus legal asset transfer in Texas, one must begin with a general understanding of what the “transfer” of an “asset” means.

Under the legal definition provided in the TUFTA, a “transfer” is “every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset.” See TUFTA Section 24.001 (12).

An “asset” can be any property which is owned by the debtor, with a few exceptions carved out. See TUFTA Section 24.001 (2).

The exceptions include property with a lien on it, property held by a debtor and the debtor’s spouse as “tenants-in-the-entirety,” and property that is exempt from collection under Texas law.

See Id. As the exceptions make clear, the types of property which meet the exceptions aren’t really “owned” by a debtor at all. For example, property with a lien on it is owned, at least partially, by the holder of the lien. For this reason, ownership rights cannot be transferred on property that falls into one of the exception categories.

If you need help from judgment liens lawyers in Houston, contact the Law Offices of Seth Kretzer today.

What Is a Fraudulent Conveyance?

A fraudulent conveyance in Texas is one that meets certain conditions of dishonest conduct under the TUFTA, and which, if found out, will generally not protect the transferred assets from collection to satisfy a judgment.

Under TUFTA Section 24.0005, a transfer of assets is fraudulent if it meets either of two conditions:

  1. The transfer must be made with actual intent to hinder, delay or defraud a creditor.
  2. The transfer must happen without a reasonably equivalent value passing between the parties.

Related to the first condition of fraudulent intent, Texas Courts have held that “actual intent to defraud creditors is a fact question. Circumstantial proof may be used to prove fraudulent intent because direct proof is often unavailable. Fact and circumstances that may be considered in determining fraudulent intent include a non-exclusive list of ‘badges of fraud prescribed by the legislature.” See Ho v. MacArthur Ranch, LLC.

Intent considerations the creditor will try to prove to a court include whether the transfer was made to an “insider,” the debtor maintained possession or control after the transfer, the transfer happened within a short time period of a lawsuit, the transfer happened shortly before or after a substantial debt was incurred, the debtor absconded or otherwise left town, or the transfer was for a substantial amount of the assets. See TUFTA Section 24.005 (2)(b).
can I transfer assets to avoid judgment?

“Insiders” are defined as including relatives of the debtor, business partners of the debtor, and corporations where the debtor is a director, officer, or other person in charge. See TUFTA Section 24.002 (7)(A).

In terms of the second condition of fraudulent transfer, there must be a value attached to the exchange of the asset. For example, a person could transfer the non-homestead interest in their Texas home (above a certain acreage set forth in Texas Property Code §41.002) to a bank via a home equity loan. This would be an exchange for value, because the owner is getting a loan and the bank is getting an interest in real property. A transfer would be considered fraudulent, however, if the same land was gifted to the original owner’s brother, because a gift provides no value in the exchange.

Selling Assets During a Lawsuit

Subject to TUFTA Section 24.0005, selling assets during lawsuit may be possible. However, selling assets during a lawsuit may trigger suspicions of fraud under the second prong of the statute, because the transfer is happening near a lawsuit and after a substantial debt was incurred. See TUFTA Section 24.005 (2)(b).

Rather than sell assets to get out of a judgement, financial experts will often recommend “exemption planning” – using available cash (which could be subject to satisfying outstanding judgments against you) to purchase exempt assets (which are not subject to satisfying a judgment). Also, rather than waiting until a lawsuit is filed, the same experts will recommend planning.

A long list of exempt assets in Texas includes the “homestead,” which is a house and up to ten (10) acres of land in an urban area, or a house and up to one hundred (100) acres of land for a single person and two hundred (200) acres for a family in a rural area under Texas Property Code §41.002.

Personal property up to $50,000 for a single person and $100,000 for a family is also exempt as set forth in Texas Property Code §41.001. Types of property eligible for exemption includes home furnishings, food, farming or ranching vehicles and implements, tools of a trade, apparel, certain jewelry, two firearms, athletic and sporting equipment, one motor vehicle for each licensed driver in the household, pets and certain farm animals.
what is fraudulent transfer?

A full list of exempt property is available under Texas Property Code §42.002. If possible, instead of selling assets, you may be able to purchase exempt assets using non-exempt assets.

Bankruptcy Transfer of Assets

Transferring assets during a Chapter 7 or Chapter 13 bankruptcy is more complex due to the transparency requirements in the petition for bankruptcy and close monitoring and control by the bankruptcy trustee. In exchange for having your debts discharged (wiped out), you must list on your bankruptcy papers your income, everything you own, and all your debts. You also must disclose all recent transfers. This could almost be considered self-imposed post-judgment discovery in Texas.

If the trustee believes the transfers are fraudulent, in addition to your bankruptcy petition being rejected, you may be subject to criminal penalties. Always consult with a bankruptcy attorney before taking any steps related to this more complex universe of asset transfer.

Let Attorney Seth Kretzer Help You Navigate Your Judgment Issues Today

If you wish to know more about fraudulent conveyance and legal asset transfer options in the State of Texas, you will need a lawyer with specific experience helping clients navigate debt consequences, and who has the right knowledge and resources to help protect your rights.

Contact Seth Kretzer online today to schedule a free consultation.

Seth is on your side and knows the best route to get your justice. Additionally, he has worked Texas judgment collection cases on both sides. He will do everything within the law to help you!

 

Phone: 713-775-3050
Fax: 713-929-2019
Houston, TX 77002
440 Louisiana, Suite 1440