Defending Against a Claimed Fraudulent Transfer

How to Defend Against a Claimed Fraudulent Transfer in NJ if You Are the Transferee

Being named a defendant in a lawsuit is unsettling, very unsettling. No doubt you’re feeling (great) anxiety and worry about the outcome and your financial future. I understand. I’m here for you. Let’s look at the law and some defenses against a claim of a fraudulent transfer we can use to protect you.

The Uniform Fraudulent Transfer Act (UFTA)

Under the Uniform Fraudulent Transfer Act (UFTA), a transferee who innocently receives a transfer of valuable property and has paid value for the transferred property is entitled to protection under New Jersey law, with certain conditions.  The following defenses are available to you.

Innocent Transferees for Value are Entitled to Protection Under the Intent Fraudulent Transfer

If you received property or funds in good faith without knowledge of the transferor’s fraudulent intent and paid value for what you received (even if the transferor had the undisclosed intent to hinder, delay or defraud his/her creditors), you are entitled to qualified protection under NJ law and the transfer is not per se voidable, meaning you can retain possession of what you paid for the transferor.

Even if a creditor is able to get a judgment against the transferor for the value of a fraudulently transferred asset, this creditor cannot (in NJ) enter a judgment against a good-faith transferee for value. A later transferee who receives fraudulently transferred property from a good-faith transferee is also protected from a creditor’s judgment in New Jersey.

Defenses Available to Insiders

An important defense available to insiders (insiders are close family members or others in a close relationship(s) to the transferor) is if the transfer was made pursuant to a “good-faith effort to rehabilitate the transferor who at the time was a debtor to a third party”. A “good faith effort to rehabilitate the debtor” means that the transfer of money was done to provide sufficient additional working capital or value to the transferor in an effort to save or restore his/her business.

This defense is very complicated and requires a close factual and economic analysis. Obviously, there are other additional defenses available, depending on the facts of your case, like “commercially reasonable” actions, “good faith” and the like. If you’re involved in a tough fraudulent transfer case, we can evaluate each fact in an effort to defeat or at least minimize your legal exposure to judgment.

Fredrick P. Niemann Esq.

Do you have a question(s) not addressed here? If so, contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com to schedule a consultation about your particular needs. He welcomes your calls and inquiries and you’ll find him very approachable and easy to talk to.