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Wife Was A “Creditor” In Alleged Fraudulent Transfer Case And Proved The Necessary Fraudulent Intent To Prevail Over Husband In Divorce Case

Lesson. Dumping real estate assets for no value shortly before a judgment, even in a divorce case, could lead to a court order unwinding the transfers under Indiana’s UFTA.

Case cite. Hernandez-Velazquez v. Hernandez, 136 N.E.3d 1130 (Ind. Ct. App. 2019)

Legal issues. Whether a wife was a “creditor” under Indiana’s Uniform Fraudulent Transfer Act? Whether the subject transfers violated the UFTA?

Vital facts. This dispute arises out of a divorce and involves the husband (Husband), the wife (Wife), the husband’s brother (Brother), and the Brother’s longtime girlfriend (Girlfriend). In connection with a decree of dissolution, there was a property division in which Wife was to receive certain parcels of real estate. Although the facts are pretty dense, in a nutshell, shortly before the divorce was to become final, Husband conveyed a bunch of real estate to Girlfriend.

Procedural history. The trial court set aside the conveyances based upon the UFTA. Husband appealed.

Key rules. Ind. Code § 32-18-2-14 sets out how a transfer becomes voidable under Indiana’s UFTA. One key inquiry is whether the transfer was made with the “intent to hinder, delay, or defraud” the creditor.

I’ve written about the test for “fraudulent intent” and the so-called “eight badges of fraud” previously.   

The UFTA defines a “creditor” as “a person that has a claim.” I.C. § 32-18-2-2.

Holding. The Indiana Court of Appeals affirmed the trial court ruling in favor of Wife.

Policy/rationale. Husband first contended that Wife was not a creditor because Brother financed the purchase of the subject real estate from Husband and had the right to direct to the conveyances to Girlfriend. However, the evidence showed that Wife contributed to the original purchases of the real estate, which, in part, had been titled in Wife’s name. The Court concluded the properties were part of the marital estate for purposes of the divorce, thereby rendering Wife a “creditor.”

Husband next argued that the transfer of real estate from Husband to Girlfriend was not made with the “intent to hinder, delay, or defraud” Wife. The Court addressed Indiana’s law of fraudulent intent and found that at least five of the eight badges of fraud were present:

First, the record shows that Husband transferred the properties to [Girlfriend] approximately one month before Wife filed for divorce and when the parties' relationship had already begun to deteriorate. Second, the transfer of these properties greatly reduced the marital estate because the rental properties were substantially all of the family's assets. Third, there is evidence that Husband would retain some benefits over the rental properties. That is, Husband, [Brother], and [Girlfriend] would continue to renovate and manage the properties and collect rent from tenants. Fourth, Husband transferred the properties to [Girlfriend] for little or no consideration. That is, he transferred all the properties to [Girlfriend] for ten dollars. Finally, the transfer of these properties from Husband to [Girlfriend] was effectively a transfer between family members. Although [Brother] and [Girlfriend] have never been married, they have been in a relationship for over thirty years and have three children together. All of this together constitutes a pattern of fraudulent intent.

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