Forbes has published an article, “Ninth Circuit Agrees That Damages Is Not An Element Of A Fraudulent Transfer Case In Medina”, which discusses the Ninth Circuit’s ruling that simply affirms well-established law that damages are not an element of a fraudulent transfer case . The article begins as follows:
California has a community property regime that characterizes a married couple’s property as either community property or separate property. His separate property is the property that he had before the marriage or inherited during it. Her separate property is the property that she brought into the marriage or inherited during it. All other property is community property, except that a couple may agree (“transmute”) their community property to separate property.
For creditor-debtor purposes, his creditors can only go after his separate property, and her creditors can only go after her separate property, but creditors of either spouse can go after all the community property. Thus, it is very common in California (and other community property states) for couples as Step #1 in their asset protection planning to enter into transmutation agreements whereby they agree to divide their community property into separate property, and thereby immediately reduce that property’s exposures to creditors by 50%.
But what if one spouse already has a creditor? In that case, California Family Code section 851 says that “A transmutation is subject to the laws governing fraudulent transfers.” This doesn’t mean that a transmutation is ipso facto a fraudulent transfer, only that such transmutations are potentially subject to a fraudulent transfer challenge, which in California usually means under its version of the Uniform Voidable Transactions Act (UVTA). If a transmutation is voided by the UVTA, the effect is that the property goes back to being community property and thus becomes available to the creditors of either spouse.
Posted by Anthony Tran, Associate Editor, Wealth Strategies Journal
Wealth Strategies Journal 