If you want to clean out, start fresh, get past your old baggage, can you give away your valuable stuff to start new? The answer is NO if you owe other people money.
With the economy still uncertain, it is tempting to want to give away what you have left, leave the area and start over someplace else. However, under the Uniform Fraudulent Transfers Act (UFTA) you cannot give away a valuable asset if you are in debt to other people.1
The UFTA can apply in family law cases in two ways. First, the spouses may conspire to give all of the assets to one spouse so the other spouse is left judgment proof as to third parties. This means that a creditor could be prejudiced. Second, one spouse may want to give away a valuable asset to someone else to avoid having to split the asset in a dissolution or pay the debt they owe their former spouse or parent of their child.
There is protection for creditors under the UFTA. The UFTA defines an asset as property of a debtor.2 It does not include the amount of a lien on property or property that is generally exempt under bankruptcy law.3
In general, a transfer is fraudulent if:
(a) it is made by a debtor without receiving reasonably equivalent value in exchange for the transfer, and
(b) either the debtor was left by the transfer or obligation with unreasonably small assets for the transaction or business in which the debtor was engaged, or the debtor intended to incur, believed, or reasonably should have believed that the debtor would incur, more debts than the debtor would be able to pay.4
This is important in a dissolution proceeding because one spouse cannot give everything to the other spouse and then file bankruptcy or try to be judgment proof as to others. The case on point for this issue is Clayton v. Wilson.5
In Clayton, the husband was in jail for sexually abusing a neighbor boy who did yard work for the family. While facing criminal charges for sexual abuse, he signed over 90.5 percent of the community property valued at more $1 million to his wife as a divorce settlement.6 The court found that this was fraudulent because he was trying to avoid payment to the neighbor in a civil suit in which the court found that both Wilson and the marital community were liable for the sexual abuse perpetrated by Wilson.7
The court can also decide UFTA claims during dissolution, such as when one spouse gifts property to other people (a family member is considered an "insider" under the statute) and the court finds the transfer was effected to avoid splitting the asset in the dissolution.8
A person is required to sell things for "reasonable" value. There does not have to be actual intent to defraud for the UFTA to be applicable.9
If a parent owes child support, the parent cannot give away assets (or sell assets at less than reasonable value) to avoid making the payments or collection actions for the payments. If a parent owes back child support, then the parent is not solvent and should not be giving away assets for "love and affection" (such as an inherited house).10 Child support is a judgment each month as it becomes due.11
If a person does inherit a house, the house passes at the moment of death, so there is no time to give away the inheritance before the creditors can ask to be paid.12 If a paying parent does inherit a house and gives it to a romantic interest for "love and affection," the court can undo the transaction. If the house was sold by the paramour, then the cash is available to transfer to the creditor.
Since back child support is a judgment each month, it also accrues interest at the rate of 12 percent per annum.13 A creditor spouse can also ask for two years of future support based on an appalling back payment record.14
So, the moral of this article is: A person can't give away a significant asset if he or she owes money to creditors - and the term "creditors" includes a former spouse or parent of the debtor's child and who is owed child support. Also, a person cannot give away property to other family members to avoid splitting the assets in a dissolution proceeding.
1 Uniform Fraudulent Transfers Act, RCW ch. 19.40.
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