Judgment debtors often attempt to place assets beyond creditors’ reach through transfers to family members, business associates, or shell entities. Fortunately, New York’s fraudulent conveyance laws provide powerful remedies to unwind these transfers and recover what you are owed. Understanding how to identify and challenge fraudulent conveyances can mean the difference between a worthless judgment and full recovery. Here is what every judgment creditor needs to know about attacking improper asset transfers.
What Constitutes a Fraudulent Conveyance?
New York’s Debtor and Creditor Law recognizes two types of fraudulent conveyances: actual fraud and constructive fraud. Actual fraud occurs when a debtor transfers property with actual intent to hinder, delay, or defraud creditors. The debtor’s subjective intent to defeat creditor claims is the key element, though direct proof of fraudulent intent is rarely available. Instead, courts infer intent from circumstantial evidence and patterns of suspicious behavior.
Constructive fraud does not require proof of fraudulent intent. Instead, certain transfers are deemed fraudulent as a matter of law based on objective circumstances. A transfer is constructively fraudulent if the debtor received less than reasonably equivalent value in exchange for the property and was insolvent at the time of the transfer or became insolvent as a result. Constructive fraud claims are often easier to prove because you need not establish the debtor’s state of mind.
Badges of Fraud That Courts Consider
Because direct evidence of intent to defraud is rarely available, courts have developed a list of circumstances known as badges of fraud that suggest a transfer was made with fraudulent intent. The presence of multiple badges creates a strong inference of actual fraud. Common badges include transfers to family members or insiders, transfers for inadequate consideration, transfers made while the debtor was insolvent or facing financial difficulty, and transfers that render the debtor insolvent.
Additional red flags include transfers made shortly before or after a substantial debt was incurred, transfers of substantially all the debtor’s assets, transfers conducted in secret or unusual ways, transfers where the debtor retained possession or control of the property after the transfer, and transfers made when the debtor was threatened with suit or collection efforts. The more badges present, the stronger your fraudulent conveyance claim becomes.
Timing is particularly important. A transfer made immediately before a judgment is entered or during active litigation strongly suggests fraudulent intent. Similarly, a series of transfers that systematically strip the debtor of assets while leaving creditors unpaid demonstrates a pattern consistent with fraud.
The Lookback Period for Challenging Transfers
New York law imposes time limits on fraudulent conveyance claims. Under Debtor and Creditor Law Section 273, actions to set aside actual fraudulent conveyances must be commenced within six years of the transfer or within two years of when the transfer was or could reasonably have been discovered, whichever is later. For constructive fraudulent conveyances under Section 273-a, the statute of limitations is also six years from the date of transfer.
These lookback periods are generous compared to many other states and provide creditors with substantial opportunities to investigate and challenge suspicious transfers. However, acting promptly is still advisable because evidence becomes harder to gather over time and additional transfers may occur that further complicate recovery.
Building Your Fraudulent Conveyance Case
Success in fraudulent conveyance litigation requires meticulous evidence gathering. Begin by conducting thorough asset searches and obtaining the debtor’s financial records through information subpoenas and debtor examinations. Look for property transfers recorded in public records, changes in business ownership, creation of new entities, and unusual financial transactions around the time of the judgment or underlying litigation.
Depose the debtor and the transferee to establish the circumstances surrounding the transfer. Ask detailed questions about consideration paid, the relationship between the parties, who initiated the transaction, whether independent legal advice was obtained, and what happened to the transferred property after the conveyance. Evasive or inconsistent answers can support your fraud claim.
Review bank records, tax returns, and corporate documents to trace the flow of assets and determine whether adequate consideration was actually exchanged. In many cases, transfers to family members or related entities involve no real payment despite documentation claiming otherwise. Proving the absence of reasonably equivalent value is essential for constructive fraud claims.
Legal Remedies Available to Creditors
If you successfully prove a fraudulent conveyance, courts have broad equitable powers to fashion appropriate relief. The most common remedy is setting aside the transfer and returning the property to the debtor’s estate where it can be reached through normal execution procedures. Alternatively, the court may impose a lien on the transferred property or allow you to execute directly against the property in the transferee’s hands.
When the property has been further transferred to subsequent purchasers or cannot be returned in its original form, the court can award a money judgment against the initial transferee for the value of the property. Some courts also allow recovery of reasonable attorney fees incurred in prosecuting the fraudulent conveyance action, which can significantly enhance your overall recovery.
Working with Experienced Collection Counsel
Fraudulent conveyance litigation is complex and requires sophisticated legal analysis and strategic planning. Identifying transfers, gathering evidence, proving the elements of fraud, and overcoming defenses raised by transferees demands expertise in both collection law and litigation tactics. Experienced Warner & Scheuerman counsel can investigate suspicious transfers, develop compelling evidence of fraud, and pursue all available remedies to recover improperly transferred assets.
The stakes in fraudulent conveyance cases are often high because these transfers frequently involve the debtor’s most valuable assets. By understanding the legal framework, recognizing badges of fraud, and aggressively pursuing remedies, creditors can successfully unwind improper transfers and convert apparently uncollectible judgments into full recoveries.
