There are many different kinds of fraud out there, and not all of them involve strangers trying to scam you on the telephone. A fraudulent transfer occurs when someone sells assets to a family member or insider in order to protect them from creditors. In most states, creditors can get a fraudulent transfer voided. In California, the debtor might also go to jail.
Fraudulent Conveyance in California
A conveyance means a transfer of money or property. A fraudulent conveyance means transferring property in order to defraud creditors. For example, a debtor about to go into bankruptcy might sign his real estate over to his spouse or business associate so it won't be an available asset to creditors in bankruptcy.
California, like many other states, has enacted the Uniform Voidable Transaction Act (UVTA), found at section 3439 et seq. of the California Civil Code. This law, previously known as the Uniform Fraudulent Transfer Act, is intended to prevent debtors from passing on their assets for free or a below-market price to keep them away from creditors.
The California UVTA makes a fraudulent transaction illegal and subject to an action by creditors to void the transaction. The California Penal Code 154 makes it a crime.
Voiding a Transfer Under the UVTA
Even before the UVTA, California law prohibited a debtor from conveying or disposing of assets in order to keep them away from a creditor. Under the uniform law, creditors have the right to recover transferred assets to satisfy the debt.
It provides that a creditor can void a transfer made by a debtor if the debtor made the transfer either with actual intent to defraud a creditor or without receiving a fair market value for the transfer or obligation.
Types of Fraudulent Transfers
California law recognizes two types of fraudulent transfers: actual fraud and constructive fraud. Actual fraud happens when a debtor intends to defraud a creditor. Usually the debtor gifts assets to a friend of family member so that the creditor gets nothing. To determine actual fraud, the court will consider:
- whether the transfer was disclosed or concealed.
- whether the transfer was of substantially all the debtor’s assets.
- whether before the transfer was made, the creditor threatened to sue the debtor.
Constructive fraud does not require proof of an actual intent to defraud. Rather, it looks at the circumstances. For example, if the debtor is insolvent yet did not get market value for the property transferred, the court can deem the transfer to be fraudulent.
Read More: What Is Fraudulent Debt?
Creditor's Possible Remedies
The California UVTA gives a creditor a variety of options once a transfer has been deemed fraudulent. If the creditor has received a court judgment against the debtor, on a claim, the creditor can attach the transferred property or the proceeds from the sale.
If there is no judgment yet, the creditor can still have the fraudulent transfer voided. It is also possible for the creditor to get a court order precluding the debtor from transferring the asset again.
Fraudulent Transfer as a California Crime
Under the UVTA, fraudulent transfer is a civil offense. California is unique among the states in many ways, and here is one more: It is the sole state to make fraudulent transfer a crime.
Under California's Penal Code 154, it can be a crime for a person to give away property to avoid a creditor from taking it to recover a debt. It is sometimes described as the crime of concealing assets from creditors. Those convicted of this white collar crime can face a fine or jail time. It is charged as a misdemeanor and is punishable by imprisonment in the county jail for not more than one year and/or a maximum fine of $1,000.
Teo Spengler earned a J.D. from U.C. Berkeley's Boalt Hall. As an Assistant Attorney General in Juneau, she practiced before the Alaska Supreme Court and the U.S. Supreme Court before opening a plaintiff's personal injury practice in San Francisco. She holds both an M.A. and an M.F.A in creative writing and enjoys writing legal blogs and articles. Her work has appeared in numerous online publications including USA Today, Legal Zoom, eHow Business, Livestrong, SF Gate, Go Banking Rates, Arizona Central, Houston Chronicle, Navy Federal Credit Union, Pearson, Quicken.com, TurboTax.com, and numerous attorney websites. Spengler splits her time between the French Basque Country and Northern California.