Asset Protection An interesting aspect of fraudulent transfer law is the general absence of repercussions to the transferor. The “worst case scenario” of a civil fraudulent transfer (outside bankruptcy or a government claim) is that the asset is made available to the creditor. In other words, if an event of liability has occurred, there is typically no legal detriment to causing a fraudulent transfer (or converting an exposed asset to a protected asset). Apart from limited sanctions imposed by a few states and potential liability for costs and attorney fees incurred by the creditor, a fraudulent transfer allows only for the recovery of the asset transferred. Aside from California imposing civil and criminal penalties for certain transfers out of state, and Arizona making fraudulent conveyance a criminal misdemeanor or felony (depending on how the law is interpreted), there is often no significant “downside” to effecting the transfer.121 In light of the litigation costs to recover assets transferred away from a creditor, assets will often not be pursued. Whether the transfer is the right thing to do is another question. 5.5
Government Claims
Obligations owed to the Federal government are subject to onerous fraudulent transfer rules.122 Fraudulent transfers away from the U.S. government may be established through diminished evidentiary standards, and, in certain cases, constitute a criminal act. The government has broad powers to reverse and punish the avoidance of 121
Ca. Penal Code § 154; Ar. Rev. Stat. Ann. §§ 44-1211; 44-1217; 13-2205(B). 122 See 28 U.S.C. § 3301 et. seq. (2009).
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