Legal Definitions - Uniform Fraudulent Conveyances Act

The Uniform Fraudulent Conveyances Act (UFCA) is a foundational piece of model legislation, first introduced in 1918, designed to protect creditors from debtors who try to avoid paying their debts by improperly transferring assets.

Essentially, the UFCA provides a legal framework for courts to undo or disregard certain transfers of property made by individuals or businesses who are insolvent (unable to pay their debts) or are made insolvent by the transfer. Its primary goal is to prevent debtors from hiding assets or giving them away to friends or family to keep them out of reach of legitimate creditors.

A key aspect of the UFCA is its ability to differentiate between two types of fraudulent conveyances:

• Presumed Fraudulent: These are transfers that are considered fraudulent even without direct proof that the debtor intended to cheat their creditors. If a debtor transfers property for little or no value while they are insolvent, or if the transfer makes them insolvent, the law often presumes it was fraudulent.
• Actual Intent to Defraud: This refers to transfers where there is clear evidence that the debtor specifically intended to hinder, delay, or defraud their creditors. This often involves direct proof of the debtor's malicious intent.

Here are some examples illustrating how the UFCA might apply:

• Example 1 (Presumed Fraud): A small business owner, facing mounting debts and on the verge of bankruptcy, "sells" their valuable antique car, worth $75,000, to their sibling for just $500. At the time of this transaction, the business owner is deeply insolvent. Under the UFCA, this transfer would likely be considered presumed fraudulent because it was made for significantly less than its true value while the owner was insolvent. Creditors could challenge this sale to recover the car's value to satisfy outstanding debts.

• Example 2 (Actual Intent to Defraud): An individual learns they are about to be sued for a substantial sum due to a professional malpractice claim. Before the lawsuit is even filed, they quickly transfer ownership of their investment portfolio and a luxury condominium into a newly created trust for their children, explicitly stating in private communications that they want to "make sure the plaintiff gets nothing." This scenario demonstrates actual intent to defraud creditors, and the transfers could be reversed under the UFCA.

• Example 3 (Business Context): A struggling manufacturing company, aware it is about to default on a major bank loan, decides to pay off a significant personal loan it owes to its CEO using the last remaining cash reserves. This payment leaves other, larger business creditors unpaid and the company completely without funds. This transaction could be challenged under the UFCA as a fraudulent conveyance, potentially falling under either presumed fraud (due to the insider transaction during insolvency) or actual intent (if there's evidence the CEO knew this would disadvantage other creditors).