Not necessarily. No law obligates a lawsuit defendant to hold his assets for the benefit of his creditors, despite common belief to the contrary. In fact, Supreme Court Justice Antonin Scalia, in one celebrated case, announced, "A creditor has no cognizable interest in the assets of a debtor prior to obtaining a judgment. Anyone can transfer their assets all day long until the sheriff shows up with a Writ of Execution pursuant to a court order."
Also contrary to popular misconception, a fraudulent transfer isn't a crime. It's a civil remedy. It divides
irreversible transfers from transfers that can later be reversed by the courts. With a fraudulent transfer, the transferor and transferee don't commit a crime. And frequently, a defendant's attorney can successfully argue that the transfer wasn't fraudulent. However, even if the defendant loses, the court remedy is only to unwind the transfer.
The essence of fraudulent transfer law was well-stated in one Florida Supreme Court case: "A fraudulent conveyance action is simply another creditor remedy. It is either an action by a creditor against a transferee 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. A fraudulent conveyance action is not an action against a debtor for failure to pay an amount owing from a prior judgment and does not warrant an
additional judgment against the same debtor because of the fraudulent conveyance."
Clearly, it's not too late to take defensive measures once you are sued – though you have fewer options than had you planned beforehand. Still, even the most dire of situations has its solutions. Again, to quote the Supreme Court, "A debtor [who is sued] need not be like a deer frozen in the headlights of an onrushing auto. The debtor still has it within his rights the opportunity to attempt to put his wealth beyond harm's way."
The safest path, of course, is to protect yourself before you encounter problems. You then have more planning options and less risk that your transfer will later be challenged. Still, many clients in litigation are advised by their attorney that it's too late to protect their assets because a lawsuit has begun or is threatened. This is poor advice. It makes no more sense than a doctor advising a patient that it's too late to try to save herself because she has already contracted a disease. Yes, you have fewer wealth-saving alternatives once you have a claim against you, and yes, you need more creative and complex planning to safely shelter your assets – but you
do have options.