As we have discussed on our firm’s website, most judgments go unpaid. Courts do not collect or force judgment debtors to pay judgments outright. Often obtaining the judgment against the debtor is just the first step, and usually the Debtor has to be legally coerced into paying anything.
Many debtors, while litigation is ongoing, attempt to judgment proof themselves. This becomes inevitable, when the debtor knows they will not prevail in the underlying suit, and a big verdict or judgment is looming. Often with the threat of judgment, debtors fraudulently convey assets to third parties, in an attempt to conceal those assets from creditors.
Luckily, there are procedures for attacking (and unwinding) these fraudulent conveyances, so that the transferred asset can be attached or levied for satisfaction of the underlying judgment. We will briefly discuss here, Florida’s laws on fraudulent transfers.
Fraudulent Transfer Defined
Under Florida’s version of Uniform Fraudulent Transfers Act (“FUFTA”), a fraudulent transfer is generally defined as “a transfer made or obligation incurred by a debtor if made with actual intent to hinder, delay or defraud any creditor of the debtor” or a transfer made “without receiving a reasonably equivalent value in exchange for the transfer or obligation.” Fla. Stat. § 726.105(1)(a)(b). The purpose of the act is to bring back fraudulently transferred assets back to the judgment debtor (and thus reachable by the creditor) or to render a money judgment against the transferee.
Actual and Constructive Fraud under FUFTA
There are basically two broad types of fraudulent transfers under FUFTA. Those types are “actual” and “constructive.” An “actual” fraudulent transfer, in one which focuses on the transferor’s intent to delay, defraud or hinder creditors (Fla. Stat. § 726.105(a)). This is differentiated from “constructive” fraudulent transfer, which focuses—not on the transferor’s intent—but some of the circumstances surrounding the transaction (Fla. Stat. §§ 726.105(1)(b); 726.106(1) and 726.106(2)). Of course, proving actual intent of a debtor can be difficult, so FUFTA provides a list factors—or “badges of fraud”—which a Court can use to infer the debtor’s intent (For example, transfer of the asset to a close family member or “insider” as defined by the act). See Fla. Stat. § 726.105(2). Proving a constructive fraudulent transfer, on the other hand, requires proof that the debtor (i) did not receive reasonably equivalent value for the asset; and (ii) the transfer rendered the debtor insolvent. Fla. Stat. §§ 726.105(1)(b); 726.106(1) and 726.106(2).
Remedies under FUFTA
FUFTA sets forth six basic remedies available to creditors: (1) avoidance of the transfer; (2) attachment of the asset; (3) injunctive relief to prohibit further transfers; (4) appointment of a receiver; (5) levy and execution; and (6) “any other relief the circumstances require” Fla. Stat. § 726.108(1)–(2).
Usually, a creditor will seek the remedy of avoidance of the transfer or a money judgment against the transferee of the asset. “[FUFTA] is either an action by a creditor against a transfer directed against a particular transaction, which, if declared fraudulent, is set aside thus leaving the creditor free to pursue the asset, or it is an action against a transferee who has received an asset by means of a fraudulent conveyance and should be required to either return the asset or pay for the asset (by way of a judgment and execution).” Yusem v. South Florida Water Mgmt. Dist., 770 So. 2d 746, 749 (Fla. 4th DCA 2000).
If the creditor does not seek to unwind the transaction, alternatively the creditor can look to obtain a money judgment against the transferee. The money judgment will be in the amount of the value of the asset transferred, at the time of the transfer, or the amount necessary to satisfy the creditor’s claim, whichever is less. Fla. Stat. § 726.109(2).
Closing
FUFTA provides a powerful tool in the judgment creditor’s arsenal to go after debtors who attempt to judgment proof themselves, prior to judgment being entered. We discussed in a past journal, how FUFTA and Fla. Stat. 56.29 are often used in tandem to attack fraudulent transfers. If you have any questions on how Andre Law Firm P.A. can assist you regarding fraudulent transfers contact us today.