What is fraudulent conveyance?

Fraudulent conveyance is a term used in asset protection law to describe a transaction in which an individual or a business transfers their assets to another person or business for the purpose of avoiding financial obligations. It is illegal in most states, including New York. When an individual or business files for bankruptcy, part of the evaluation process includes an examination of all previous transfers of money or property. The court will look for fraudulent conveyance, which can include any assets that were transferred without the consideration of fair market value, within a certain time frame prior to the filing. This type of behavior is considered fraud because it is purposely done to keep assets out of the hands of creditors. Fraudulent conveyance can also involve transferring assets to a family member or friend in order to limit the amount a court can take away from the debtor. This type of transfer is also illegal and results in the assets being placed in a "constructive trust" which is overseen by the court. In the event that a fraudulent conveyance is identified, the court will typically order that the assets be returned to the bankruptcy estate and can further require the person responsible for the fraud to pay damages to the creditors. It is important to note that fraudulent conveyance does not necessarily have to be a deliberate attempt to hide assets. If an asset is transferred for too little or no consideration, the court may still view it as fraudulent. Therefore, it is always important to ensure that any asset transfer is done in accordance with the law and with full consideration of the fair market value of the asset.

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