Two years prior to the entry of the judgment, Rayle transferred ownership of an account in Indiana to himself and his acquaintance, Bonnie Lockwood (“Lockwood”), as joint tenants. In February 1999, five months prior to the entry of the judgment, Rayle transferred his $60,000 interest in the account to Lockwood, who became the sole owner of the account.
Lockwood gave no consideration to Rayle for the initial transfer of funds to her, nor for the subsequent checks Rayle endorsed to her and which she deposited into the account. These transfers amounted to approximately $343,000. Lockwood used most of the money she received from Rayle to pay his business and personal expenses.
After obtaining judgment in California, Nostalgia sought to enforce the judgment against Rayle and sought a turnover of the funds in Lockwood’s account. The court ordered that the remaining funds in Lockwood’s account, $36,000, be paid to Nostalgia.
Nostalgia then filed suit against Lockwood seeking a judgment for the difference between the $343,000, which Rayle had transferred to Lockwood without consideration, and the $36,000 Nostalgia recovered in the Indiana proceedings. The court granted judgment against Lockwood for the $307,000 difference because it found that Rayle had committed constructive fraud under the Uniform Fraudulent Transfer Act.
The court ruled that when a person transfers funds to another person without receiving anything in return and the transferor is insolvent or made insolvent by the transfer, the transfer is voidable even if there was no intent to hinder creditors. The court noted the “seeping back of the transferred money to Rayle by Lockwood’s payment of some of his business and personal expenses is strong evidence of the actual fraud by [Rayle].” The court reasoned, “It is one thing to make a gift; it is another to transfer money to someone when you expect to then retransfer it to you, the inescapable implication is that you are parking your money in a place where you hope your creditors won’t know to look.”
There are numerous asset protection devices that can be employed in the event of a potential liability so that you may avoid the problems experienced by Rayle and Lockwood. Call a member of the firm if you want to explore the possibilities.