Legal Definitions - UFTA

UFTA stands for the Uniform Fraudulent Transfer Act.

The Uniform Fraudulent Transfer Act (UFTA) is a law adopted by most U.S. states. It provides a legal framework for creditors to challenge and potentially reverse certain transfers of assets made by a debtor. The purpose of the UFTA is to prevent debtors from giving away or selling their property for less than its true value, especially when doing so would make it difficult or impossible for them to pay their legitimate debts. It allows courts to "undo" such transfers if they were made with the intent to defraud creditors, or if they left the debtor financially unable to pay their debts without receiving a fair exchange for the transferred assets.

• Example 1: Transferring Assets Before a Lawsuit

  Imagine a business owner, anticipating a large financial judgment against their company in an ongoing lawsuit, quickly sells their personal luxury yacht and vacation home to a close relative for a nominal fee (a very small amount of money). This transfer occurs just weeks before the court issues a final judgment requiring the business owner to pay a substantial sum to the plaintiff.

  How it illustrates UFTA: This scenario strongly suggests an actual intent to defraud or hinder a creditor. The timing of the transfer (just before a judgment) and the lack of fair value received for valuable assets indicate a deliberate attempt to shield those assets from collection by the future judgment creditor. Under the UFTA, the creditor could ask a court to void or reverse these transfers, making the yacht and home available to satisfy the debt.

• Example 2: A Struggling Business Selling Assets Below Market Value

  A small manufacturing company is facing severe financial difficulties and is on the brink of bankruptcy. Knowing that the company will soon be unable to pay its suppliers and lenders, the owner sells a significant portion of its valuable machinery and inventory to a newly formed company owned by their spouse for a price far below market value. This transaction leaves the original manufacturing company with almost no assets to pay its existing creditors.

  How it illustrates UFTA: This is an example of a "constructively fraudulent" transfer under the UFTA. Even if there wasn't explicit proof of intent to defraud, the transfer occurred when the company was insolvent (or became insolvent because of it), and the company did not receive "reasonably equivalent value" for the assets. The UFTA allows creditors to challenge such transfers, as they unfairly deplete the debtor's assets that should have been available to satisfy debts.

• Example 3: Gifting Assets to Avoid Future Creditors

  A medical professional, concerned about potential future malpractice claims, decides to transfer a significant portion of their personal wealth, including investment accounts and real estate, into an irrevocable trust for the benefit of their children. This transfer is made without receiving any equivalent value in return, and it substantially reduces the professional's personal assets. A few years later, a malpractice claim is filed, and a large judgment is awarded against the professional.

  How it illustrates UFTA: The UFTA can apply to transfers made to avoid *future* creditors as well as existing ones. If the transfer into the trust was made without receiving reasonably equivalent value, and it left the medical professional with insufficient assets to pay potential future claims, a court could deem it a fraudulent transfer. The creditor could then seek to have the assets in the trust made available to satisfy the judgment, arguing that the transfer was made with the intent to hinder or delay future creditors.