If you transfer property for little or no consideration, a “fraudulent transfer” likely exists. A second method of proving a fraudulent transfer exists when a transfer by a debtor renders that debtor insolvent or near insolvency where the debtor is insolvent just before the actual transfer.
Proving a Fraudulent Transfer When the Debtor is Insolvent or Near Insolvency
To prove an alleged fraudulent transfer based on insolvency you must show that: (1) a transfer was made, (2) without the debtor receiving a reasonably equal dollar value in exchange, and (3) when the debtor is insolvent or which causes the debtor to be insolvent.
What Constitutes “Insolvency”
The NJ Fraudulent Transfer Act establishes three tests to determine insolvency. They are:
- Are the debtor’s debts greater than all of the debtor’s assets when appraised at fair market value?
- Is the debtor paying his or her bills as they become due? If not, then the transfer is presumed to be insolvent.
- A NJ partnership is insolvent under N.J.S.A. 25:2-23(a) if all of the partnership’s debts exceed the fair market value of the partnership’s assets.
PROVING A FRAUDULENT TRANSFER: WHEN A NJ CORPORATION OR NJ BUSINESS IS UNDER-CAPITALIZED
Another means of proving a fraudulent transfer under NJ law involves the debtor operating their business at a time when the debtor’s funds are inadequate to conduct business in the ordinary course.
Under this type of business fraud, three elements must be proven: (1) a transfer was made by the debtor, (2) without the debtor receiving a reasonably equal value in exchange, (3) to an under-capitalized business. Both existing and likely future creditors may avail themselves of protection under the Act.
THE MOST COMMON NJ FRAUDULENT TRANSFER IS WHEN THE DEBTOR TRANSFERS FUNDS OR PROPERTY JUST BEFORE OR AFTER INCURRING A SIZEABLE DEBT
Another type of fraudulent transfer and perhaps the most common under the NJ Uniform Fraudulent Transfer Act occurs when a debtor makes a transfer of money, property or assets just before the debtor is about to incur a significant debt when he or she is incapable of paying their bills. Here you do not have to prove that the debtor actually intended to defraud his or her creditors when the transfer was made. Your case is proven by virtue of the fact you (1) can’t get paid, (2) the debtor transferred assets or property for value without recovering equal consideration.
A FRAUDULENT TRANSFER OCCURS WHEN A FRAUDULENT TRANSFER IS MADE TO AN INSIDER
The final type of fraudulent transfer involves a debtor’s transfer to an insider if the transfer was made by a debtor for a pre-existing unpaid debt while the debtor was insolvent and the insider had reasonable cause to believe that the debtor was insolvent.
What are a Creditor’s Remedies Under the New Jersey Fraudulent Transfer Act?
New Jersey has legal remedies available to individuals and businesses that have been the subject of a fraudulent transfer. These remedies include: (1) voiding the transfer or obligation to satisfy the debt, (2) obtaining a prejudgment seizure against the transferred asset or property of the transferee, (3) restraining the further transfer or relocation of the asset, (4) seeking the appointment of a receiver to protect the asset, or (5) damages.
The Primary Remedy Under the NJ Fraudulent Transfer Act is to Set Aside the Transfer
The Fraudulent Transfer Act is particularly helpful to a victim of a fraudulent transfer since the primary remedy under the law is to set aside the fraudulent transfer to satisfy the creditor’s claim. Under the UFCA, creditors of bankrupt or insolvent businesses that paid salaries, dividends, profits and loans to members of the principal stockholder’s family, without fair consideration, are entitled to have those conveyances set aside. For example, husband’s pre-death transfer of monies to his children was set aside to satisfy his wife’s claim under a pre-marriage contract when it was discovered that the transfer left the husband insolvent.
Remedies Against Transferees Under the NJ Fraudulent Transfer Act
A creditor in NJ has recourse against a transferee of fraudulently transferred property. If the creditor can set aside a transfer, he or she can pursue the transferee and obtain a judgment against the transferee for damages and other relief. A transferee may have defenses to a creditor’s attempt to avoid a transfer, which are unavailable to the debtor who made the transfer. It depends on a number of factors.
Because the success of fraudulent transfer claims is so fact sensitive, you should consult with an experienced NJ business law attorney. Contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at firstname.lastname@example.org.