1. What do you mean by a transfer after you incur a 'present liability'?
If you sell an asset for less than its fair value, the creditor must secondly
show that the transfer occurred after you had the liability. Once you
have a present liability, you cannot safely transfer your assets for less
than fair value. No less safe are assets that you transfer when you have
a future, foreseeable or probable liability. But you can safely transfer
your assets to protect them against a future possible liability. How do
we differentiate a probable from a possible liability? The courts consider
the facts of each case. When did the act occur that created the liability?
When did the debtor first learn of the liability? When was the transfer?
Courts conclude differently on whether a liability was probable or possible.
A 'present liability' exists from the moment you have a creditor
(incurred a liability). Later asset transfers can be challenged. For example,
if you sign a lease today and gift your assets tomorrow, your landlord
can recover your gifted assets if you later default on your lease. You
didn't have to be in default on your lease for your transfer to be
fraudulent. It's also immaterial whether you were yet sued. The critical
date is when did the liability arise – not the date of default or
when the lawsuit was filed.
2. When is a transfer considered for less than fair value?
One obvious situation is when the debtor merely gifts his assets. However,
proving a sale was made for less than fair value can sometimes be difficult.
Courts define 'fair' consideration subjectively. 'Fair'
consideration is the price for which a reasonably prudent seller would
sell his property in a commercially reasonable manner. 'Fair value'
depends largely on the type of property. For example, public stocks or
bonds have an ascertainable fair value and a debtor who transfers public
shares for less than its daily quoted price would create a fraudulent
transfer equal to the difference in value. Conversely, real estate sold
for 70 percent of appraised value has been held to satisfy the fair value
test. Other difficult-to-value items include jewelry and the closely-owned
business. Courts must then consider the relevant facts to determine 'reasonable
3. What if I transferred my assets but didn't actually intend to defraud
Since actual fraud cases are difficult for creditors to prove, creditors
more often claim constructive fraud. Constructive fraud is a gift or sale
of property for less than fair value (or fair consideration), made in
the face of a known or probable liability and which leaves the debtor
insolvent. A transfer can be constructively fraudulent, even if you act
innocently and without actual intent to hinder your creditors, but a creditor
challenging your transfer must still prove each of these three elements.
The Presser Law Firm, P.A. can integrate an Asset Protection Plan with
your existing Entities and Estate Plan or work with you to create a new one.
Contact us today for a complimentary preliminary consultation regarding
your Asset Protection options.
The Presser Law Firm P.A.
6199 N. Federal Highway, Boca Raton FL 33487
(800) 999-9992 or e-mail