Avoiding Fraudulent Transfers

Sometimes debtors do sneaky things like conveying real estate out of their names to try to put those assets out of the reach of their creditors.  Fortunately, New Jersey has a Fraudulent Transfer Act that gives creditors some recourse.  The Act grants a creditor a period of four years after the transfer to sue the debtor, or within one year of discovering the transfer, whatever is later.

In order to prevail on a claim under the Fraudulent Transfer Act, the creditor must show that the transfer was made with actual intent to hinder, delay or defraud the transferor’s current creditors and/or future creditors.  This requirement recently came into play in a Bergen County Chancery Division suit.  The creditor had asserted both actual and constructive fraud claims.
The court dismissed the actual fraud claim (although timely filed) because the plaintiff’s account did not exist at the time of the allegedly fraudulent transfer, and therefore plaintiff could not prove that the debtor intended to defraud him.
Then the court dismissed the constructive fraud claim because it was not filed within the four year statute of limitations period.  However, the court noted that unlike actual fraud claims, the creditor alleging constructive fraud need not show that it was a current or future creditor at the time of the transfer, so long as the claim is timely filed.
The New Jersey Fraudulent Transfer Act is the latest statutory scheme intended to give creditors recourse in the event of fraudulent conveyances.  There will doubtless be further case decisions interpreting the statute and giving creditors and debtors guidance.  Stay tuned.

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