Sometimes a spouse will transfer property, such as financial accounts, paid up life insurance policies, a business or real estate to an entity, person or irrevocable trust without the other spouse’s knowledge or consent during the marriage and prior to filing for divorce. These transactions are usually discovered once a Complaint for Divorce is filed and discovery is served. If this transfer was made for the purpose of hiding the asset from the marital claims of a spouse in divorce, then it can be set aside by the Court as a fraudulent conveyance under the Uniform Voidable Transaction Act (“UVTA”), O.C.G.A. Section 18-2-70. [Prior to July 1, 2015, fraudulent conveyances were governed by the Uniform Fraudulent Transfer Act (“UFTA”).]
O.C.G.A. Section 18-2-74(a) provides, “A transfer made or obligation incurred by a debtor is voidable as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation: (1) With actual intent to hinder, delay, or defraud any creditor of the debtor...”
The first line of inquiry is whether a spouse is a creditor who has a claim. The UVTA defines a “creditor” in part as “a person who has a claim...” O.C.G.A. Section 18-2-7(4). A spouse is certainly a person with a claim in divorce. The UVTA further defines a “claim” as “a right to payment, whether or not the right is reduced to judgment, liquidated, un-liquidated, fixed, contingent, matured, un-matured, disputed, un-disputed, legal, equitable, secured, or unsecured.” O.C.G.A. Section 18-2-71(3). A spouse has a contingent un-matured claim prior to filing for divorce.
The party asserting the claim has to prove at trial that the other spouse funded or transferred assets with the intent of removing them from reach in any subsequent alimony or equitable division action to satisfy the requisites of the UVTA. The Court would have to find that the claimant spouse had a right to payment from the party’s earnings and assets as equitable division, alimony, or child support. The spouse would assert rights upon filing for divorce as a creditor to void prior transfers of assets intended to deprive that party of rights in equitable division, alimony, and/or child support.
As of the date of this article, there is no published opinion in Georgia speaking directly to this issue, although it would seem clear that Georgia is receptive to the idea of one spouse as a creditor of the other vis-à-vis fraudulent transfer claims. See Harrison v. Harrison, 228 Ga. 126, 184 S.E. 2d 147 (1971); Armour v. Holcombe, 228 Ga. 50, 52(1), 701 SE 2d 169 (2010), and Speed v. Speed, 263 Ga. 166, 430 SE 2d 348 (1993).
While no published Georgia appellate decision has definitively defined whether a divorce and alimony action has to be “prospective,” “imminent,” or “in contemplation of divorce” to invoke the act, the plain language of the UVTA would seem to suggest instead that the focus should be on the state of the parties’ relationship at the time of the transfer of assets, rather than on the time lapsing between the transfers and the filing for divorce. Many couples live in loveless states of sexual abstinence in fractured marriages for years before one party files for divorce. Fraudulent conveyances become a financial hedge against the inevitable.
A cause of action asserting a fraudulent conveyance, however, has to be brought “within four years after the transfer was made or the obligation was incurred or, if later, within one year after the transfer or obligation was or could reasonable have been discovered by the claimant.” O.C.G.A. Section 18-2-79(1). The statute of limitations expressly runs from the date the transfer was made, so you have to look at each alleged fraudulent conveyance separately. Each funding event has to occur within four years of the claimant’s asserted cause of action for fraudulent transfer unless the claimant spouse could reasonably have discovered the transfer of assets at an earlier date, and if so, what earlier date, and then the fraudulent transfer claim has to be brought within one year of that date. Because of this statute of limitations, the imposition of another time standard such as whether divorce was “prospective, “ “imminent,” or “in contemplation of divorce” imposes a standard to divorce cases which has no statutory basis.
There are eleven badges of fraud, and all eleven do not need to be proven to establish actual intent to defraud. They are as follows:
- The transfer or obligation was to an insider;
- The debtor retained possession or control of the property transferred after the transfer;
- The transfer or obligation was disclosed or concealed;
- Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
- The transfer was of substantially all the debtor's assets;
- The debtor absconded;
- The debtor removed or concealed assets;
- The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
- The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
- The transfer occurred shortly before or shortly after a substantial debt was incurred; and
- The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.
O.C.G.A. Section 18-2-74(b).
As an example of the application of the badges of fraud to show actual intent to defraud, a spouse who places assets into an irrevocable trust during the marriage, naming a family member as trustee and failing to tell his spouse about the transfer, having been threatened by the spouse with divorce prior to the transfer, concealing the existence until after the filing for divorce, and receiving nothing in value for the transfer, would satisfy six of the eleven badges of fraud. O.C.G.A. Section18-2-74(b)(1)(2)(3)(4)(7) and (8).
As a matter of procedure, the trustee of a trust or third party to whom property has been transferred should be joined as a party to the divorce litigation so that the Court has authority to Order the transfer of marital property back to the marital estate for equitable division in the event the Court finds there was a violation of the UVTA. O.C.G.A. Section 18-2-77(a)(b).
In summary, in order to rule on a fraudulent transfer claim, the Court must answer 1) whether the spouse is a creditor of the other within the meaning of the UVTA, 2) whether the transfer of assets was done with actual intent to hinder, delay or defraud the spouse, and 3) whether the spouse is asserting the fraudulent transfer claim within the applicable statute of limitations. To afford the Court the ability to provide complete relief, a joinder of third parties to the divorce is necessary.