Transfer to Spouse Fraudulent

Fraudulent Conveyance

Wife Put Briefly on Title for Financing

Douglas v. Hill, — P.3d —-, (Wash.App. Div. 1 Jan 20, 2009) (NO. 60428-7-I)

This case may have been decided differently if there had been better lawyers representing the defendants. At trial, the court inexplicably held there must be a lien before a creditor can invoke the Uniform Fraudulent Conveyance Act (UFTA) even though there is no such provision in the Act. It is hard to understand how the trial judge (Island County Clerk Court; Honorable Alan R. Hancock, J.) could come to this conclusion unless the briefing by the lawyers was exceptionally poor.

The trial court reasoned that a judgment creditor was entitled only to recover the amount it would have received but for the fraudulent conveyance of the property. Since the creditors, the Douglases, had not recorded their lien with the county auditor as required by statute, they could not collect upon the judgment and were thus not injured by the wife’s conveyance to her husband.

The wife had embezzled $500,000 and the couple filed for bankruptcy protection. The husband exonerated of crime. After the bankruptcy, a house was purchased by the husband and briefly put in wife’s name to obtain refinancing. The defendants’ lawyers negligently failed to prove this well known lender requirement.

The Court of Appeals was not aware of the requirement and did not consider whether the refinancing motive changed the outcome. Wife’s interest was then transferred back to husband without consideration. The Court of Appeals pointed to the language of the statute. Under the definitions provided in the UFTA, a creditor need only have a right to collect a payment to void a fraudulent transfer. Such a reading is bolstered by the language found in RCW 19.40.041, which states that a transfer may be fraudulent “whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred.” Once a creditor has established that the transfer meets the pertinent definitions set forth in the UFTA, a creditor may seek relief available under that statute. RCW 19.40.071 permits a creditor to void “the transfer or obligation to the extent necessary to satisfy the creditor’s claim.” The court in Davis v. Nielson explained:

A creditor, for the purposes of the UFTA, is “a person having any claim, whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent.” RCW 19.40.010. The status of “creditor” is not lost because security has been taken for a debt, and a secured creditor is entitled to bring an action to set aside a fraudulent conveyance by his debtor. The security holder may sue to set aside, as fraudulent, a conveyance of property not covered by the security. It follows that a mortgagee is a “creditor,” and a mortgagor a “debtor” within the definitions of the Uniform Fraudulent Conveyances Act in respect to the right to set aside as fraudulent a conveyance of property not secured by the mortgage. Thus, the secured creditor may proceed, as any other creditor whose claim has matured under RCW 19.40.090, to (a) set aside the conveyance or annul the obligation or (b) attach or levy upon the property conveyed.

Debtors should keep the UFTA in mind when making pre-bankruptcy or other financial planning decisions.

Transfer to Spouse Fraudulent


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