Has a friend or relative involved or about to be involved in litigation proposed to transfer title to an asset such as real property, interest in a business, or other assets to you so that a creditor will be unable to collect in the event the creditor obtains a judgment? Be careful. Under California law, if you accept such property or interest without providing adequate money or consideration, you may find yourself subject to a lawsuit for fraudulent transfer.
A fraudulent transfer occurs when a debtor who is involved or is about to become involved in a lawsuit transfers an asset to a friend or relative for the purpose of preventing ther creditor from being able to collect a judgment. When this occurs, both the debtor and the person to whom the asset was transferred may be liable for fraudulent transfer. There are several factors a court will look at to determine if there has been a fraudulent transfer to avoid a creditor, such as whether the transferee is a friend or relative of the debtor, whether the transferee paid any money or consideration for the asset the received, whether the transfer of the asset occurred soon after a lawsuit was threatened or filed, if the debtor concealed the transfer from the creditor, and/or if the debtor became insolvent as a result of the transfer of asset(s).
Fraudulent transfers often occur in the context of a bankruptcy petition where prior to filing for bankruptcy, the debtor transfers assets to a friend or relative in order to protect these assets from his/her creditors. In such instances, the bankruptcy trustee may pursue a fraudulent transfer claim against the transferee in order to recover the transferred assets.
Whether in the context of a bankruptcy petition or a civil lawsuit, a person who is found liable for fraudulent transfer also be liable for punitive damages, in addition to any other damage a creditor suffered as a result of the fraudulent transfer.