Chapter 25 - § 25.10 • FRAUDULENT CONVEYANCES AND PREFERENCES: AGREEMENTS TO PROTECT NON-DEBTOR SPOUSE

• Jurisdiction: Colorado

§ 25.10 • FRAUDULENT CONVEYANCES AND PREFERENCES: AGREEMENTS TO PROTECT NON-DEBTOR SPOUSE

§ 25.10.1—Fraudulent Transfers

Pursuant to § 548, conveyances made for the purpose of hindering, delaying, or defrauding creditors are avoidable by the trustee in bankruptcy. This includes transfers pursuant to a dissolution settlement agreement. This issue is most commonly encountered in the "friendly dissolution" situation. For example, one spouse, contemplating bankruptcy, agrees to accept only exempt assets while transferring all non-exempt assets to the spouse. The spouse holding exempt property files bankruptcy, alleging that he or she has no assets to be administered and pay creditors. If challenged, the transfers will be avoidable by the trustee if the division of property and debt is found not to be for reasonably equivalent value. 11 U.S.C. § 548(a)(1)(B).

In a 1999 case, In re Fordu, 201 F.3d 693 (6th Cir. 1999), the wife won the Ohio lottery. Under Ohio law, the lottery proceeds were payable only to the wife, but were nevertheless marital property. The couple filed for dissolution. The husband and wife entered into a "sweetheart" separation agreement under which the wife kept all lottery proceeds and the jointly owned marital residence. The husband then filed for bankruptcy. The bankruptcy trustee brought a § 544 action to set aside the transfers. The wife argued that the separation agreement was binding on the trustee. The bankruptcy court disagreed, stating:

[T]he standards for measuring the fairness of a property division in the domestic relations arena and reasonably equivalent value in a fraudulent transfer case are separate and distinct. We thus do not equate the Domestic Relations Court's approval of the Dissolution Decree with a determination by the court that the transfers made in connection with the parties' property division were supported by reasonably equivalent value.

Id. at 707.

If a...