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What is a Fraudulent Transfer?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 03 December 2016
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    Conjecture Corporation
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A fraudulent transfer, sometimes also known as a fraudulent conveyance, is a transfer of property which takes it out of the reach of creditors who have the right to access that property in order to settle an outstanding debt. Many nations have several different laws which cover fraudulent transfers, and it is important to be familiar with these laws before moving assets around to make sure that one does not run afoul of them.

In some cases, a transfer of assets is viewed as fraudulent because someone knowingly moves the property with the specific goal of making sure that it does not fall into the hands of creditors. The debtor may transfer the asset to someone else with the understanding that the asset is being “held,” or move the asset offshore. In cases where property changes hands and the person transferring the property has outstanding debt, if the debtor does not receive equivalent compensation, this is viewed as a red flag. For example, if someone sells a house to a family member for $10 United States Dollars (USD), this would be considered a fraudulent transfer because the recipient did not pay anything near what the property was worth.

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People can also conduct fraudulent conveyances without the intent to defraud and the transaction will still be considered a fraudulent transfer. If someone know that she or he has outstanding debt and chooses to transfer assets which make the debt difficult or impossible to pay back, this may be fraudulent. This can include transferring assets out of reach of creditors and thereby becoming insolvent, or being in a state of insolvency and transferring assets.

If a debtor is not aware of creditors, a transfer is not considered fraudulent because the debtor did not knowingly move assets even though creditors had a legitimate claim to those assets. However, people may be required to demonstrate that they were unaware of the creditors or they may get in trouble for a fraudulent transfer. It is a good idea to document transfers of assets very meticulously so that people can demonstrate the facts of the matter.

There are numerous reasons for people to transfer assets, and they may not necessarily do so with the intent to defraud. People who want to avoid a problem with fraudulent transfer laws should talk to an attorney or an accountant about their intent to find out whether or not their activities are legal. These professionals can offer advice about a specific course of action and about asset protection in general.

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