What is a Fraudulent Transfer in Illinois?
ASSET PROTECTION PLANNING
The term “fraudulent transfer” refers to a transfer of property which is made for the purpose of deceiving a creditor and inhibiting the creditor from collecting a debt owed. An example of a fraudulent transfer would be the following:
Day 1: An individual has $200,000.
Day 2: A creditor obtained a judgment against the individual for $100,000.
Day 3: The individual transfers his $200,000 to his wife.
Under Illinois law, the individual’s transfer on day three represents a fraudulent transfer because it leaves the individual insolvent and unable to pay the creditor. Illinois has adopted the Uniform Fraudulent Transfers Act, (UFTA), 740 ILCS 160/1, et seq., which enables a creditor to obtain a court order voiding the type of transfer described in the example above. The purpose of the UFTA is to “invalidate otherwise sanctioned transactions made with a fraudulent intent.” UFTA defines the term “transfer” broadly, to include:
every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance. 740 ILCS 160/2(l).
This broad language allows a creditor to attack not only direct transfers but the transfer of any interest, even partial, in an individual’s assets.
If a creditor believes that the debtor has fraudulently transferred any assets, then the creditor will initiate a lawsuit asking the court to reverse the alleged fraudulent transfer. The two threshold questions in any fraudulent transfer case are whether the party seeking relief qualifies as a creditor and whether the transferor qualifies as a debtor who owes a debt to the creditor. Each of these questions is potentially highly contentious and has generated a lot of case law. The bottom line is that if you are seeking to make a transfer of the type described above, you must be aware that your creditors could potentially unwind that transfer.
A common pitfall in asset protection planning is the individual’s failure to disclose to the attorney all the claims and potential claims the individual may be exposed to. Even if there is no lawsuit pending, if the individual knows of a claim against them they could subject themselves to a fraudulent transfer suit. Therefore, it is extremely important to seek the counsel of a qualified asset protection lawyer to discuss your options with you. The sooner you can address these issues the better.
Chicago Asset Protection Attorney
At Hays Firm LLC we have experienced asset protection lawyers who are knowledgeable in various asset protection techniques. We look forward to speaking with you to discuss your options and what plan works best for you.