What Is a Fraudulent Transfer under Texas Law?

If you are concerned about creditors accessing your assets, you need to know what a fraudulent transfer is under Texas law. Some kinds of transfers are prohibited by law because they are performed to evade or hinder a judgment creditor. In other words, you are not supposed to transfer assets to hide them from creditors who are seeking payment due to a legal judgment. To understand what constitutes a fraudulent transfer, Texans should look to the Texas Uniform Fraudulent Transfer Act.

What Is the Texas Uniform Fraudulent Transfer Act?

This law, the TUFTA for short, prohibits people who owe money to creditors from defrauding the creditors by moving assets so the creditors cannot access them. Creditors can use the TUFTA to seek relief in court if a debtor makes a fraudulent transfer. Courts may grant the remedy of voiding the transfer as if it didn’t happen. Tex. Bus. & Com. Code § 24.008. This allows the creditor to access the assets. The creditor takes the assets in fulfillment or partial fulfillment of the debt. Alternatively, the creditor may receive other relief such as an injunction preventing the debtor from moving more assets. Under what circumstances would a court grant a creditor this kind of relief? To answer this, you will need to understand what constitutes a fraudulent transfer.

What Is a Fraudulent Transfer?

Put simply, a fraudulent transfer is any way of getting rid of an asset with the goal of making it hard for creditors to access it. The Texas Uniform Fraudulent Transfer Act provides a broad definition of “fraudulent transfer”. First, a “transfer” is “every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and included payment of money, release, lease, and creation of a lien or other encumbrance.” Tex. Bus. & Com. Code § 24.002(12). In other words, a transfer is getting rid of property that you own.

A transfer is “fraudulent” if you conduct it under one of the following circumstances:

  • You have “actual intent to hinder, delay, or defraud” any of your creditors
  • You didn’t receive a “reasonably equivalent value in exchange” for the transfer and you intended or believed that you would soon have debts that you wouldn’t be able to pay
  • You didn’t receive a “reasonably equivalent value in exchange” for the transfer and you engaged in a transaction where your remaining assets were “unreasonably small” in relationship to the transaction.
  • You are insolvent and transferred assets to an “insider” (such as a relative or business partner)

Tex. Bus. & Com. Code §§ 24.005(a), 24.006. In other words, a transfer is fraudulent if the debtor meant to defraud or delay their creditors. Also, transactions where the debtor received a very small amount of money or property not equivalent to the asset they transferred are suspect. Finally, if the debtor is headed towards bankruptcy, a transfer may be fraudulent if made to a close relative or business associate.

Why You Need a Lawyer for Fraudulent Transfer Matters

There are many nuances of the TUFTA not explained here, such as what constitutes actual intent. You need not have a “fraudulent” intent for a creditor to seek relief under the TUFTA. There is also a substantial body of case law interpreting the TUFTA. A decision in a creditor’s favor can have serious consequences for a debtor. That is why you should seek legal advice if you are involved in a fraudulent transfer matter – or if you are simply interested in protecting your assets from creditors in the future. A lawyer can advise you about fraudulent transfer litigation in court, what constitutes a permissible or fraudulent transfer, and many other issues related to fraud and fraudulent transfer. It’s simply not worth the risk of proceeding without a lawyer, so make sure to get knowledgeable legal advice about your specific situation.

Let Us Help with Your Fraudulent Transfer Matter

As experienced Houston business trial lawyers, we help clients involved in fraud and fraudulent transfer litigation and pre-litigation. Our firm prides itself on our knowledge, attention to detail, and helpful advice tailored to each client’s individual circumstances. Henke, Williams & Boll can assist with Texas lawsuits and related matters for clients in the Houston area. Give us a call at (713) 936-5521 to set up a consultation or use our convenient Contact Form.

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