Sometimes when people get into financial trouble, they look for an easy way out and hope that no one is looking. Many individuals think that creative approaches for transferring assets to spouses or trusts or other quirky strategies are an easy solution to financial problems. However, most of these creative approaches – which are deemed fraudulent transfers by the courts - usually end up costing the individual far more than the amount of money they originally sought to protect. Several recent cases serve to demonstrate this, as in one of Lewis Saret’s recent posts on Forbes (and the much longer list in the Wealth Strategies Journal.)
In re Quaid, (2011 WL 285645, Bkrtcy.M.D.Fla., Jan. 26, 2011,) a Florida man sought to use a self-settled trust to shield his assets from creditors. According to his account, even though the trust was self-settled (he, the beneficiary of the trust, set it up) the assets were still exempt because of a spendthrift provision. Unfortunately the Orlando Division of the US Bankruptcy court ruled that a spendthrift provision does not apply to a self-settled trust when the beneficiary contributed assets, and that wrecked the plan. The assets amounted to $400,000 and were added to his estate, well within reach of his creditors.
In the case of Struyk v. Meltzer (2011 WL 1019916, Cal.App. 4 Dist, Unpublished, Mar. 23, 2011) we see the far more common case of inter-spousal transfers deemed to be fraudulent. A California man facing a $500,000 debt, tried to shield assets by transferring them to his spouse, who was debt-free. He tried to quit-claim his interest in their residence and allow her to claim it as sole property, effectively transferring the asset. But instead of shielding the residence, the jury found that the husband intentionally transferred the property to the wife in order to defraud his creditor, which ultimately led to a jury verdict well in excess of the value of the assets transferred.
The bottom-line: fraudulent transfers can prove counter-productive at best and disastrous at worst. When financial challenges arise, the best solution is to find a skilled professional in estate planning and if necessary, bankruptcy law, to avoid making a bad situation worse.
If you have questions, call me at (516) 307-1236 or send an email at email@example.com to discuss how proper estate planning is used to protect assets, ensure wealth transfer, and achieve short and long term goals. You can also see further information on my website, www.sjslawpc.com.