The Basics of the Uniform Fraudulent Transfer ActLangdon Owen
June 5, 2008 — 4,836 views
Most of the states (approx. 43), including Utah (since 1988) (where the author practices law), have enacted the Uniform Fraudulent Transfer Act (promulgated in 1984). Other states (approx. 3) have enacted the earlier Uniform Fraudulent Conveyances Act (promulgated in 1918; used in Utah prior to 1988), while still others have some form of rules based on the Statute of Elizabeth of 1571, 13 Eliz. 1, C.5 of England. One way or the other, all states have some version of a fraudulent transfer rule which protects, to one extent or another, creditors from certain transfers by a debtor or obligations undertaken by a debtor with the intention or effect of avoiding payment of debts. Generally, these rules provide such protection by making the transfer made or obligation undertaken voidable by certain creditors and by allowing other remedies, as well. Here we will focus on the most recent and most common set of rules, the Uniform Fraudulent Transfer Act (the "Act").
In Utah, our version of the Act is located at UCA § 25-6-1, et seq., but is numbered slightly differently from the Act. A new § 1, naming provision, was added; thus, Act § 4 will be Utah § 25-6-5. Also, Act provisions labeled (a), (b), (c), etc., will in Utah be (1), (2), (3), etc.; thus, Act § 4(a) will be Utah § 25-6-5(1). I will discuss the Act, but since I am familiar with Utah law, a number of the cases cited will be Utah cases.
1. Basic Classifications. Let's first look at the key classifications of the two major components with which planners will be most concerned: protected creditors and prohibited transfers. a. Creditors. The Act essentially divides protected creditors into one of two groups, present or future, depending upon when the claim of the creditor arose in relation to the time of the debtor's prohibited transfer of property or prohibited incurring of an obligation. The grounds required to demonstrate a prohibited transfer or obligation and obtain relief is sometimes different for present and for future creditors. Creditors with claims arising at or before the questioned transfer or obligation can be classed as present creditors, and those with claims arising after the transfer or obligation can be classed as future creditors. A creditor is a person who has a claim, and a claim is broadly defined as "a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." Act § 1(3). Threats of divorce are sufficient to make one a creditor. Bradford v. Bradford, 993 P.2d 887 (Ut. App. 1999). i. Notice v. Accrual. The rule used by the Bradford court has been referred to as a claim notice theory, under which the actual accrual of a claim is not always necessary. See the interesting concurring opinion of Judge Carolyn B. McHugh in Tolle v. Fenley, 132 P.3d 63 (Ut. App. 2006) (the court used the notice theory and cited to Bradford; although the barred claim argument was not preserved in the lower court and thus was not decided, this case involved a claim (tort claim relating to a rape) which the claimant continued to discuss with the tortfeasor but which was likely barred by limitations before the transfer but was resurrected by the claimant's obtaining a default judgment after the fraudulent transfer occurred).ii. Claim Barred by Limitations. Although not decided by Tolle, it is probably best to assume that even a claim barred by limitations is a claim: it is not fraud or otherwise wrongful to assert it, and it can be used for defensive purposes of recoupment, and so on. It is a claim which has a strong defense against it, but which defense may be waived or not asserted; for purposes of fraudulent transfers, this may be sufficient because the act is remedial and is to be construed in light of its remedial purposes. As pointed out by Judge McHugh, in Tolle, there are, however, some older cases in other jurisdictions to the contrary.b. Transfers. A transfer is broadly defined 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, creation of a lien or other conveyance." Act § 1(12). Also, obligations incurred by a debtor may be prohibited as well as a transfer. See Act § 4(a)(1).i. Disclaimer. There is an issue whether a disclaimer or renunciation which has, for other purposes, retroactive effect relating back to the transfer (e.g., passage by will or intestacy) to the disclaiming person, is a transfer by the disclaiming person for fraudulent transfer purposes. Most states have found no transfer where the statutory requirements for disclaimer have been met. David B. Young, The Intersection of Bankruptcy and Probate, 49 So. Tex. L. Rev. 351 (2007) at note 254; see: Dyer v. Eckols, 808 S.W. 2d 531 (Tex. App. 1991); Tomkins St. Bank v. Niles, 537 N.E.2d 274 (Ill. 1989). However, some states treat disclaimers as transfers subject to fraudulent transfer law either by statute or case law. See, e.g., Stein v. Brown, 480 N.E.2d 1121 (Ohio 1985) (actual intent to defraud a present or future creditor); Succession of Neuhauser, 579 So.2d. 437 (La. 1991); Kalt v. Youngworth (In re Kalt's Estate), 108 P.2d 401 (Cal. 1940) (superceded by subsequent statute). An intervening lien or levy prior to disclaimer where the disclaimer would constitute the retroactive dispossession of a creditor's property right if the disclaimer were given effect, could raise an issue of whether a disclaimer otherwise allowable should be allowed in such circumstances.
ii. Bankruptcy. The bankruptcy result will turn on state law. See In re Sanford, 369 B.R. 609 (10th Cir. BAP (Wyom.) 2007); Hoeckes v. U.S. Bank of Boulder, 476 F.2d 838 (10th Cir. 1973) (applying § 67(d)(2) of former Bankruptcy Act then codified at 11 USC § 107(d)(2)). iii. Federal Taxes. For federal tax purposes, however, separate rules apply to disallow disclaimers. See Drye v. U.S., 528 U.S. 49 (1999) (federal taxes and tax liens).iv. Medicaid. For Medicaid, statutes or case law may well disallow the effect of a disclaimer. See State v. Murtha, 427 A.2d 807 (Conn. 1980); In the matter of Molloy, 214 A.D.2d 171, 631 N.Y.S. 2d 910 (1995) (failure to pursue an available resource resulted in Medicaid disqualification); Hinschberger v. Griggs, 499 N.W.2d 876 (N.D. 1993); Troy v. Hart, 697 A.2d 113 (Md. App. 1997); Tannler v. Wis. Dept. of Health & Soc. Serv., 564 N.W.2d 735 (Wis. 1997); see also 42 USC § 1396 p (e)(1). However, in one state, the disclaimer did not result in disqualification. In re the matter of Kirk, 591 N.W.2d 630 (Iowa 1999).c. Prohibited Transfers. Prohibited transfers can be divided into two key groups, those made with a prohibited intent ("actual intent fraud"), and those which are prohibited without regard to that intent based on some form of test related to insolvency ("constructive fraud"). i. Intent. The prohibited intent for actual intent fraud is the "actual intent to hinder, delay or defraud any creditor of the debtor." This is generally shown by circumstantial evidence as to certain badges of fraud. There is no requirement of lack of reasonably-equivalent value. A transfer to a good-faith purchaser for value, however, will be protected against being voidable. Act § 8(a). Unlike the situation for constructive fraud, there is no additional protection for a default lease termination or enforcement of a security interest.ii. Insolvency-Related Tests. The tests related to insolvency for constructive fraud can be classed in three groups:
A. Classic Insolvency. The following are the classic tests of insolvency and apply to any transfer or obligation lacking reasonably-equivalent value while the debtor is insolvent or (except for insider transfers for antecedent debt) by which the debtor is rendered insolvent under these tests. Act § 5(a). A debtor is insolvent where:
- the sum of debtor's debts is greater than all of the debtor's assets at a fair valuation (Act § 2(a)) (this takes into account off-balance sheet items); under this insolvency test, assets do not include transfers concealed or removed with actual intent or if the transfer is voidable under the Act (Act § 2(d)); or
- the debtor is generally not paying debts as they become due (Act § 2(b)).
- However, a transfer resulting from a default lease termination or enforcement of a security interest won't be voidable under this test. Act § 8(e).
B. Transactional Tests. Also, where the classic tests aren't met, a transfer or obligation without reasonably-equivalent value may be prohibited as constructive fraud under two additional "transactional" tests:
- the debtor's remaining property is unreasonably small for the business or transaction, where the debtor is engaged in a business or transaction (Act § 4(a)(2)(i)); or
- the debtor intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due (Act § 4(a)(2)(ii)).
- However, a transfer resulting from a default lease termination or enforcement of a security interest won't be voidable under this test. Act § 8(e).
C. Insider Debt. A variation in the application of the classic insolvency test occurs with respect to a transfer to an insider (a broadly-defined term) for an antecedent debt (even where there is no lack of reasonably-equivalent value). Act § 5(b). In such case, the transfer is fraudulent where:
- the debtor is insolvent (under the classic tests) at the time of the transfer (becoming insolvent as a result of the transfer is not prohibited), and
- the insider had reasonable cause to believe the debtor was insolvent.
- However, to the extent new value is given, the transfer may be protected from being voidable if the new value is given in the ordinary course or in a good-faith effort to rehabilitate the debtor. Act § 8(f).
- Also, as under the classic and transactional tests, transfers resulting from default lease terminations or security interest enforcement won't be voidable under this test. Act § 8(e).
iii. Value. Under either the classic or the transactional insolvency- related tests for constructive fraud (other than an insider transfer for antecedent debt) the transfer or obligation must be made without reasonably-equivalent value received by the debtor. There is no lack of reasonably-equivalent value requirement for either actual intent fraud or an insider transfer for an antecedent debt.
- Value includes to secure or satisfy an antecedent debt.
- Value does not include an unperformed promise other than in the ordinary course of performer's business. Act § 3(a).
- A noncollusive foreclosure is reasonably equivalent value.
- A transfer for an interest in an organization may raise issues of reasonably equivalent value. See National Loan Investors, L.P. v. Givens, 952 P.2d 1067 (Ut. 1998).
d. Protection. Both present and future creditors are generally protected against both actual intent fraud and transactional test constructive fraud. Classic insolvency test constructive fraud (both basic and insider debt versions) applies only to present creditors. The relationships between these key categories (and their Utah limitation periods; other states may have somewhat different limitations periods) are summarized in this chart:
1. Intent. A number of factors are applied in determining whether the debtor had the requisite prohibited actual intent. This is generally most important to future creditors who cannot rely on the classic insolvency tests for constructive fraud and where the transactional tests may not be met or may not apply.a. Future Creditor Planning. Where there is an actual intent to hinder, delay, or defraud a present creditor, a future creditor will also be protected from the transfer or obligation involved, and vice versa; such an intent as to "any creditor" triggers the fraudulent conveyance provisions. However, where there is no such intent as to a present creditor, does asset protection planning show an intent to hinder, delay, or defraud future creditors? Does it make a difference in finding or not finding such intent that a creditor's claim could have been reasonably foreseen or that it was not or could not have been foreseen? The foreseeability of a claim does appear to make a difference.
Some cases include: First National Bank in Kearney v. Bunn, 195 Neb. 829, 241 N.W. 2d 127 (1976) (requiring proof that the transaction "was made to defraud subsequent creditors whose debts were in contemplation at the time"); Hurlbert v. Shackelton, 560 So. 2d 1276 (Fla. Ct. App. 1990) (although the distinction between probable and possible future creditors was not the relevant inquiry, a claimant still needs to show actual fraudulent intent). See also: Klien v. Klien, 112 N.Y.S. 2d 546 (1952) (transfer by grantor without present creditors who "feared for future dangers, real or imaginative" was "no more than insurance against possible disaster"); Cram v. Cram, 262 Mass. 509, 106 N.E. 337 (1928) (requiring intent "to contract debts in the future and avoid payment of them because of the transfer of his property"); In re Heller Inter Vivos Trust, 161 Misc. 2d 369, 613 N.Y.S. 2d 809 (N.Y. Sur. 1994) (approval of severing trust for "purpose of limiting liability to nonexistent but possible future creditors"); Riechers v. Riechers, 679 N.Y.S. 2d 233, 178 Misc. 2d 170 (1998) (no cause to set aside trust "established for the legitimate purpose of protecting family assets for the benefit of the Riechers family members"); but see: Altman v. Finkel, 52 N.Y.S. 2d 634, 268 A.D. 666 (1st Dept. 1945), aff'd 295 N.Y. 651, 64 N.E. 2d 715 (1945) (finds the actual intent with respect to a future creditor where there was an actual intent to conceal assets from present and future creditors through an alter-ego corporation). Also compare In re Levine, 40 B.R. 76 (Bnkr. S.D. Fla. 1984) (mortgage payment toward exempt homestead was permissible prebankruptcy planning) with In re Reed, 700 F.2d 986 (5th Cir. 1983) (mortgage payment toward exempt homestead was made with actual intent to hinder, delay, or defraud creditors).
b. Badges of Fraud. Common law courts have long looked to various objective circumstances which tend to demonstrate a fraudulent intention as to which direct proof is seldom available. The Act actually lists a number of these "badges of fraud" which may be considered, along with others. See Selvage v. J.J. Johnson & Assoc., 910 P.2d 1252 (Ut. 1996); Tolle v. Fenley, 132 P.3d 63 (Ut. App. 2006). Act § 4(b) describes the following badges; those which appear to me to be the very most important are noted "key":
- transaction with insider
- debtor retains possession and control
- transaction concealed and not disclosed (key)
- debtor sued or threatened with suit (key)
- transfer substantially all assets
- debtor absconded
- debtor removed or concealed assets
- consideration was less than reasonably-equivalent value (key)
- debtor insolvent, or soon becomes insolvent (key)
- transaction shortly before or shortly after substantial debt incurred
- transfer essential business assets to lienor who transfers them to an insider.
Of these badges, and others, since the list is not exclusive, all are significant but none is by itself determinative. "Proof of any one or more of the [badges] may be relevant as to the Debtor's actual intent but does not create a presumption." Comment (5) to Act § 4.
c. Planner's Problem. In planning transactions for a person who does not have significant present debts, perhaps through spousal or other gifts or through transfers through trusts or business organizations, the planner can often feel relatively confident that no intent to hinder, delay, or defraud a present creditor exists (there are no creditors), that classic insolvency affecting a present creditor does not exist (the CPA tells us so), and possibly also feel at least somewhat assured that the transactional tests affecting present or future creditors won't likely be violated (capital within general norms; no unusual transactions on the horizon; has typical insurance, etc.). The same level of confidence may not be possible as to the risk of a hindsight finding of actual intent to hinder, delay, or defraud a future creditor. The cases on foreseeability cited above are helpful, as is the burden of proof to demonstrate actual intent fraud, clear and convincing evidence (Bradford v. Bradford, 993 P.2d 887 (Ut. App. 1999)), but a prudent planner will want more-to cancel out as many badges of fraud as possible. Some ideas on how to help accomplish this in appropriate situations include advising the transferor:
- use third-party independent trustees not under the thumb of the transferor
- avoid unusual or excessive retained rights and powers
- if consideration is involved, retain documentation of the reasonableness of values
- retain documentation of solvency and of assets and income sufficient to meet obligations now and later
- make no efforts to conceal the transaction but take affirmative steps to disclose it where possible (see Schreyer v. Scott, 134 US 405 (1890))
d. Disclosure. Disclosure is a helpful, proactive way to help prevent trouble. The client should:
- record deeds,
- file financing statements,
- register trusts,
- show asset protection trusts in financial statement footnotes or at least not reflect on financial statements assets which are not subject to creditor claims,
- post notices of actual owner of business assets,
- file appropriate tax returns and reports,
- not overvalue assets in financial or other reports.
Future creditors on notice that an asset is not available cannot reasonably rely on the asset when extending credit because "future creditors give credit to their debtor on the basis of what he has, and not on the basis of what he once had." See Schofield v. Cleveland Trust Co., 135 Ohio St. 328, 332, 21 N.E. 2d 119, 121-122 (1939). Thus, as to at least some creditors, where such disclosures have been made, the policy argument can be raised that their own negligence caused their loss, not any debtor misconduct. See John E. Sullivan III, The Often Overlooked Role of Disclosure in Asset Protection Planning, p. 367, Ch. 19 of Bove, ed., Asset Protection Strategies, ABA 2002.
Tort claims raise different policy concerns where the claimant likely will not have had a chance to check a debtor's assets before the claim arose; this may make such an argument about a creditor's own negligence ineffective for such creditors. However, disclosure will still tend to show (to one degree or another) that there was no intent of the debtor to hide the transaction and thus be relevant and quite helpful in defending against a claim of knowing fraud.
2. Remedies. A fraudulent transfer is not void (unlike actual common law fraud), but is voidable. Baldwin v. Burton, 850 P. 2d 1188 (Ut. 1993). Subject to protecting some transfers or obligations (under Act § 8), the Act § 7 describes the alternative remedies to include
- avoid the transfer or obligation to extent necessary to satisfy the claim
- use a provisional remedy, such as attachment or receivorship against the transferred asset or other assets of the transferee
- enjoin further disposition of the asset by the debtor or transferee or of other assets of the transferee, or other such relief as required
- where the creditor has a judgment, the court may order execution against the transferred asset or its proceeds. See Jensen v. Eames, 519 P.2d 236 (Ut. 1974) (Judgment creditor may litigate question of fraudulent conveyance in garnishment proceeding, creditor's bill in equity, or execution proceeding); Rappleye v. Rappleye, 99 P.3d 348 (Ut. App. 2004) (writ of garnishment under divorce decree an appropriate proceeding).
The creditor obtains no more relief than the creditor would have had without the occurrence of the fraudulent conveyance. Marine Midland Bank v. Markoff, 508 N.Y.S. 2d 17 (1986). See Brockbank v. Brockbank, 32 P.3d 990 (Ut. App. 2001) (ex-wife as a foreclosing creditor could not control the equity of redemption, and its transfer would not be wrongful as to the ex-wife who, in any event, accepted the proceeds from the transfer of the right of redemption and applied them to the debt).
a. Actual Intent Transfer - Good-faith Transferee. A transfer made with actual intent will not be set aside as against a good-faith transferee or obligee for value or a subsequent transferee or obligee. Act § 8. Even where the transferee seeks a preference from the debtor, this action by the transferee may not be sufficient to show lack of good faith. Butler v. Wilkinson, 740 P.2d 1244 (Ut. 1987). But actual notice of a wrongful transfer is not required, rather constructive notice to the purchaser may be sufficient to defeat the purchaser's claim. Meyer v. General American Corp. 569 P.2d 1094 (Ut. 1977).
b. Voidable Transfer - Money Judgment. If the transfer is voidable, the creditor may obtain judgment for the value of the asset transferred or if less, the amount to satisfy the creditor's claim. The judgment may be against the first or any subsequent transferee except for a good-faith subsequent transferee for value or transferee subsequent to a good-faith transferee for value. Act § 8(b).
c. Voidable Against Good-faith Transferee. Where a transfer is voidable against a good-faith transferee or obligee, such a transferee or obligee is, to the extent of value given, entitled to a lien on the property transferred, enforcement of the obligation incurred, or reduction in the liability on the judgment against such transferee or obligee. Act § 8(d). This would apply to a transferee who took under a transfer subject to one of the constructive fraud insolvency-related tests because the good-faith transferee for value protection only applies to the actual intent test. Act § 8(a). Under the insolvency-related tests (other than an insider with antecedent debt), the transferee or obligee would have given less than reasonably-equivalent value, and such value as they have given gets this protection. The insider may have given reasonably-equivalent value in good faith and nevertheless have the transaction concerning the antecedent debt voided; presumably, such an insider will still at least remain a creditor, be subject to a shorter statute of limitations, and may obtain protection to the extent new value is paid.
d. Not Always Tortious. The fraudulent conveyance, taken alone, is not generally illegal or tortious, at least outside a bankruptcy crime context. Mack v. Newton, 737 F.2d 1343 (5th Cir. 1984) (distinguishes "actual fraud" from "actual intent to hinder, delay, or defraud," states that making or receiving a fraudulent conveyance is not necessarily illegal or wrongful, and notes that the act affects title to an innocent transferee, as well as someone participating in a fraud); Elliott v. Glashon, 390 F. 2d 514 (9th Cir. 1967); U.S. v. Franklin National Bank, 376 F. Supp. 378 (S.D.N.Y. 1973).
e. Individuals Acting for Organizations. Also, individuals acting for corporations or other organizations which make or receive fraudulent transfers might be held liable. See Stochastic Decisions, Inc. v. DiDomenico, 995 F.2d 1158 (2d Cir. 1993) (under New York Debtor and Creditor Law, attorney liable for masterminding judgment debtor's fraudulent transfer; part of transferred assets used to pay legal fees). However, a number of courts have refused to extend liability to corporate agents as "aiding or abetting," as "conspirators," as "accessories," or as "personal participants," at least where the agent was not actually fraudulent and did not personally benefit. Compare DFS Secured Healthcare Receivables Trust v. Caregivers Great Lakes, Inc., 384 F.3d 338 (7th Cir. 2004 (Indiana law)) (officer of a "first transferee" found by jury to be acting with "malice, fraud, gross negligence, or oppressiveness" may be responsible as a personal participant under common law rule); with such cases as Lowell Staats Mining Co. v. Phila. Elect. Co., 878 F.2d 1271, (10th Cir. 1989) (Colo. law) (res judicata on claim against corporation eliminates a separate claim against director for fraudulent transfer, because the director is in privity with the corporation and "participation" was for corporation, not personally); Mack v. Newton, supra.; Kondracky v. Crystal Restoration, Inc., 791 A.2d 482, 483 (R.I. 2002); Freeman v. First Union Nat'l Bank, 865 So.2d 1272 (Fla. 2004).
f. Attorneys' Fees. Attorneys' fees are not provided by the statute itself, but may be recovered as consequential damages under the "third party litigation" exception to the rule denying attorneys' fees, but only if the litigation over the fraudulent conveyance was foreseeable on account of the original breach of contract by the defendant making the fraudulent conveyance, not just from the subsequent wrongful conduct itself. Gardiner v. York, 153 P.3d 791 (Utah App. 2006) (also discussing foreseeability and consequential damages in this context); Macris & Associates v. Neways Inc., 60 P.3d 1176 (Ut. App. 2002).
3. Timing. When a transfer occurs will make a difference for determining limitations periods and for determining present or future creditor status.a. Limitations. Act § 6 provides limitations periods for actions under the Act. Utah's periods are shown in the chart above; they are basically one year for an insider with antecedent debt and four years from the transfer for the other tests with the period for actual intent fraud including an additional one year from discovery rule. The periods run from the date of the transaction, or with respect to actual intent fraud, from discovery (if longer). Fraudulent concealment may extend the limitation period. See Rappleye v. Rappleye, 99 P.3d 348 (Ut. App. 2004) (fraudulent concealment tolled statute; recording quitclaim deed insufficient to put ex-wife creditor on notice).b. Perfectible Transfer. However, it is important to note that the time does not commence to run until perfection as to a perfectible transaction. "The premise is that if the law prescribes a mode for making the transfer a matter of public record or notice, it is not deemed to be made for any purpose under the Act until it has become such a matter of record or notice." Prefatory Note by Commissioners to the Act. Without such perfection, the transfer will be treated as occurring immediately before the filing of the bankruptcy or the case under the Act. Act § 6(2); Bankruptcy Code § 548(d)(1). c. Other Transfers. Otherwise, a transfer is made when it becomes effective between the debtor and transferee, but not before the debtor has acquired rights in the asset. Act § 6(3) and (4); Bankruptcy Code § 548(d)(1). d. Present or Future. Failure to properly perfect can, in addition to pushing out limitations periods, make a creditor a present creditor (not needing to prove actual intent fraud) when the creditor might otherwise have been a future creditor. These rules again point to the importance of perfection and disclosure.
4. Some Bankruptcy Effects. There are some variations on the theme of fraudulent conveyances applicable in bankruptcy proceedings. a. Transfer Set Aside. The trustee in bankruptcy can set aside certain fraudulent conveyances. Bankruptcy Code § 548. This section includes fraudulent transfers (defined similarly as under the Act) made within two years prior to the filing of the bankruptcy petition. Under Bankruptcy Code § 548(e) asset protection trusts and similar devices termed "self-settled trust or similar device" may be set aside if the transfer is within a 10-year look-back period from the petition and is made with actual intent to hinder, delay, or defraud present or future creditors. (Query: Why would not a charitable remainder trust, qualified personal residence trust, retained life estate, or annuity, all of which provide for distributions to the transferor, be covered?)
The trustee in bankruptcy may also use its "strong-arm" powers under Bankruptcy Code § 544 to set aside transfers voidable under state law, including fraudulent transfers, where there are unsecured creditors who could do so. This provides the trustee the longer state law limitations period.
Whether a disclaimer will be effective under Bankruptcy Code § 548 or the strong arm provision of Bankruptcy Code § 544 will in both cases turn an applicable state law. See In re Sanford, 369 B.R. 609 (10th Cir. BAP (Wyom.) 2007) (under § 548 there would be no transfer for fraudulent conveyance purposes where state law disclaimer relation back applied)
b. Other Effects. Also, a fraudulent transfer may deny a debtor a discharge under Bankruptcy Code § 727, and if it constitutes a continuing concealment of a retained interest, the two-year period won't limit the discharge denial. Thibodeaux v. Oliver (In re Oliver), 819 F.2d 550 (5th Cir. 1987). Moreover, the homestead exclusion can be reduced by the amount of nonexempt assets transferred into the homestead within 10 years of the petition with actual intent to hinder, delay, or defraud creditors. Bankruptcy Code § 522(o). See In re Maronde, 332 B.R. 593 (D. Minn. 2005).
c. Bankruptcy Crime. The fraudulent transfer set aside as being within two years of the petition may well constitute a violation of the bankruptcy crime provision 18 USC § 152(7) (. . . in contemplation of a case under Title 11 . . . or with intent to defeat the provisions of Title 11, knowingly and fraudulently transfers . . .) (See Burchinal v. U. S., 342 F.2d 982, cert denied 382 U.S. 843 (10th Cir. 1965)), and even such a conveyance prior to the two-year period may also be a violation, since the criminal rule is not limited to two years prior to the filing of the petition. U. S. v. West, 22 F.3d 586, cert. denied 513 U. S. 1020 (5th Cir. 1994). As long as the intent to defraud a bankruptcy court is present, the crime can be complete, even if there never are any bankruptcy proceedings. Burke v. Dowling, 944 F. Supp. 1036 (E.D. N.Y. 1995). Punishment for violation is a fine, five years imprisonment, or both. Also, such a fraudulent transfer in violation of this section can be a crime on which a RICO racketeering claim can be predicated. Cadle Co. v. Flanagan, 271 F. Supp. 2d 379 (D. Conn. 2003).
5. Litigation and Discovery. Under the Act, a creditor with a claim (broadly defined as described above) may use a number of the remedies of the Act prior to judgment (such as injunctions and provisional remedies). Under Rule 18 of the federal and many state Rules of Civil Procedure, plaintiffs may join "in a single action . . . a claim for money and a claim to have set aside a conveyance fraudulent as to that plaintiff without first having obtained judgment establishing the claim for money." See Utah Rules of Civil Procedure 18(b). Further, plaintiff may be entitled to discovery under Rule 26(b)(1) as to any nonprivileged matter "relevant to the subject matter involved in the pending action" even if not admissible if calculated to lead to the discovery of admissible evidence. The subject matter is "any matter that bears on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in the case." Oppenheimer Fund Inc. v. Sanders, 437 U.S. 340 351 (1978). Thus, a claim for money could give rise to early discovery into possible fraudulent conveyances to be added as claims in the case.