What is a fraudulent conveyance?

A fraudulent conveyance is a legal term to describe when a person disposes of money or other property to avoid a debt.

The modern term for fraudulent conveyances in New Jersey law is voidable transactions.

No matter which term one uses, it is important to remember that a voidable transaction does not require a person to plot to sidestep their debts or other obligations.

The real questions for a court will be whether the person gave property to a relative or close personal business associate or friend or, for that matter, sold it for a steep discount that no one could realistically expect on the open market.

In order for a transfer to be considered voidable, the person also has to have been suffering some degree of financial distress.  Specifically, the person has to be insolvent, that is, not able to cover all of his or her debts even if he or she disposed of all property.

Asset protection planning can prevent voidable transactions

The trouble with voidable transactions is that a creditor can get a court order that effectively unwinds the transaction, meaning someone is going to have to come up with money or property and do so quickly.

Allegations that a transaction is voidable can happen in a number of contexts. For example, a contentious divorce or other high-pressure litigation can get New Jersey residents thinking about lawfully protecting their assets from hostile creditors.

Likewise, even if they do not raise concerns about voidable transfers in the strict sense, people should also carefully consider asset protection when tax planning or planning to receive government benefits. They are encouraged to seek legal advice when doing so.

On the flip side, not carefully planning when making gifts or other transfers can lead to serious legal issues.