The basic idea with a fraudulent transfer is that property is transferred for less than fair market value, in order to avoid paying a creditor
There can be actual fraud (intent not to pay a creditor), or constructive fraud (a transfer for less than fair value although not actual fraud).
The Connecticut Statute describes four situations
1. Transfer made or obligation incurred by debtor when claim of creditor occurred before date of transfer or obligation, and debtor was insolvent (assets greater than liabilities) or became insolvent because of transfer or obligation, and no reasonably equivalent transfer (gave more than received) 52-522(f)(1)
EXAMPLE
Debtor gives property away worth $80,000 for $20,000 cash on 2/1/2017
On date debtor gives away property, debtor is insolvent, assets are $100,000 and liabilities/debts are $200,000
Creditor Alex was owed $70,000 when debtor gave away property
2. Creditors claim occurred before transfer is made or obligation incurred. Transfer made by debtor on antecedent debt (old debt). Debtor was insolvent at time of transfer, and transfer to insider. CGS 52-5252(f)(2). Insider had reasonable cause to believe that debtor was insolvent
Example
Debtor gives away property
Property is given to an insider, typically a relative.
On date debtor gives away property, debtor is insolvent, assets are $100,000 and liabilities/debts are $200,000.
Insider debt was from a transaction which occurred over 6 months before transfer.
Insider/relative knew debtor’s financial condition.
3. Creditors claim occurred before transfer or obligation. Debtor made transfer with actual intent to hinder, delay or defraud creditor. CGS 52-522e(a)(1)
In this situation, a creditor has to prove actual fraud. The amount of the consideration given is not relevant.
4. Creditors claim occurred before transfer or obligation and either
a. No receipt of reasonably equivalent value (partial gift) and
1. Debtor was engaged or about to engage in business or transaction for which the remaining assets are unreasonably small in relation to business or transaction or
2. Debtor intended to incur or reasonably should have believed that he would incur debts beyond his ability to pay
CGS 52-522e(a)(2)
EXAMPLE
Debtor owed creditor $70,000 from a transaction in July of 2016
On 1/2/2017, debtor gives someone a $100,000 piece of property to pay a $55,000 bill.
On 1/2/2017, debtor either
a. Was about to enter into a large transaction for $250,000, knowing that he had no assets to pay off the bill
b. Expected to enter into a large transaction, in the future, and knew that the bill(s) would not be paid
The statute of limitations to bring an action is 4 years, except that the special transfer rules for insiders provide for a statute of limitations of 1 year.
Robert M. Singer, Attorney at Law
2572 Whitney Avenue
Hamden, CT 06518
203-248-8278
rsingerct@yahoo.com
Serving all of Connecticut