What Are Fraudulent Transfers?

October 27, 2015

Fraudulent transfersAsset protection is very important to anyone who wants to protect their estate but proper protection can be tricky. Asset protection planning is basically the process of evaluating all of your assets and arranging, or rearranging, them so you can protect them against loss. However, if not done correctly, you may cross the line into tax evasion or creditor fraud. Fraudulent transfers are a major concern in the area of estate planning.

Fraudulent Transfers

A fraudulent transfer, also referred to as a fraudulent conveyance, is the process of moving your assets to avoid creditors or legal liability. Whenever you convey assets for the purpose of defrauding a legitimate creditor, you are guilty of making a fraudulent transfer. The only intent required is knowing that your assets are at risk, or could be used to satisfy some legitimate legal obligation, and you move those assets out of reach.

How to Avoid the Appearance of Fraud

The key is, asset protection must be done when you are not at risk, meaning you are conveying your assets when your asset protection plan is created, not when you are in some legal situation that puts your assets at risk. The problem is, even if fraud or debt avoidance is not your intent, your asset transfers may still be viewed as fraudulent, depending on the situation.  It is all about timing.

Asset Protection Planning Comes Before a Claim Arises

For an asset protection plan to be truly effective, it must be put in place long before a creditor’s claim has been made, or any sort of liability arises. Any transactions involving your assets, which occur after the claims have arisen, are likely to be considered fraudulent. Prior planning is also important because not many people really understand or recognize when a claim of liability arises. Once you receive a demand for payment on a debt, or been served with a  lawsuit, it is too late to start planning.

Consequences of Making Fraudulent Transfers

It is a common misconception that the only consequence of late planning is the canceling of the fraudulent transaction. Instead, both the debtor and the person who aided in the fraudulent transfer can be held liable for attorney fees incurred by the creditor involved. The debtor may also lose any chance of discharging that particular debt in bankruptcy.  Many states have fraudulent transfer laws which provide very stiff penalties for fraudulent transfers.

In Nevada, a conviction for "fraudulent conveyance" is considered a gross misdemeanor, the punishment for which is up to 364 days in jail and/or up to $2,000 in fines, as well as restitution. “Receiving” a fraudulent conveyance is a misdemeanor in Nevada, resulting in up to six months in jail and/or up to $1,000 in fines, and restitution.

How Creditors Prove Fraudulent Activity

If a creditor can prove that you have moved your assets to avoid liability, your assets may be seized, even after they have been transferred.  All a creditor has to show is that you transferred your property, you received less than fair market value for that property, and the transfer left you unable to satisfy that creditor.  All three of these things must be shown.  An asset protection plan goes a long way toward preventing creditors from seizing your assets, and even more important keeping you out of jail.

If you have questions regarding fraudulent transfers, or any other asset protection planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.

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