New Jersey's Uniform Fraudulent Transfer Act

A party that prevails in a lawsuit and obtains a judgment awarding them money does not automatically receive the money awarded. People often do not realize that collection of a judgment is no guarantee. In other words, even if you win a lawsuit, you may still not get paid the money to which a court has determined you are entitled. Sometimes this is merely because the loser of a lawsuit, the judgment debtor, has no money or other assets to pay the judgment. In most cases, there is no remedy to this problem, and if the judgment debtor has no money, you will not get paid and the judgment will not be satisfied. However, if a judgment debtor has intentionally placed money or assets outside of your reach with the purpose of preventing you from collecting your judgment, there may be a remedy. In such a circumstance, in New Jersey you may have recourse against the debtor under the Uniform Fraudulent Transfer Act. N.J.S.A. 25:2-20, et seq.

How Can a Claim Under the Uniform Fraudulent Transfer Act Help Me?

If you prevail in a New Jersey court on a claim under the Uniform Fraudulent Transfer Act, a variety of remedies are available. N.J.S.A. 25:2-29. The fraudulent transfer may be undone to the extent necessary to satisfy your claim. You may be able to look to the transferred asset to satisfy your claim. You may be able to obtain an injunction preventing further transfer of the subject asset, or potentially other assets belonging to the person receiving the transfer. You may be able to obtain the appointment of a receiver to take charge of the subject asset.

Is a Judgment Necessary to Obtain Relief Under the Uniform Fraudulent Transfer Act?

It is not necessary for a creditor to have already obtained a judgment in order to seek relief in New Jersey under the Uniform Fraudulent Transfer Act. See N.J.S.A. 25:2-21. A creditor need only have a “claim” against the debtor, which is defined broadly.

What Must Be Proven to Establish Fraud Under the Uniform Fraudulent Transfer Act?

The term “transfer” under the Uniform Fraudulent Transfer Act is very broad. In essence, any change in the ownership of an asset, or an interest in an asset, may be considered a transfer. N.J.S.A. 25:2-22. A transfer of an asset may be from the ownership of one person or entity to another, or from different accounts owned by the same person. The critical question New Jersey courts will answer to determine whether a transfer is fraudulent as to a creditor is "whether the debtor [or person making the conveyance] has put some asset beyond the reach of creditors which would have been available to them" if there had been no conveyance.” Gilchinskey v. National Westminster Bank NJ, 159 N.J. 463, at 475-76 (1999).

To find that a transfer was made with fraudulent intent, courts must also determine that the transfer was made with either the actual intent to defraud, delay, or hinder the creditor, or with “constructive” intent to defraud the creditor. N.J.S.A. 25:2-25(a). Constructive intent exists when the debtor, without receiving fair value in exchange for the asset transferred, intended to incur, or reasonably believed or should have believed he would incur debts beyond his ability to pay. N.J.S.A. 25:2-25(b)(2). Courts will make a determination of intent based upon the totality of the circumstances in each case, which means a highly fact sensitive inquiry.

The party alleging the fraud and seeking to undo the transfer bears the burden of proving the debtor’s fraudulent intent.

How Is the Existence of Fraudulent Intent Determined?

Proving fraudulent intent is difficult. On the bright side, the Uniform Fraudulent Transfer Act provides examples of facts that are recognized to support a finding of fraud. The Uniform Fraudulent Transfer Act identifies the following examples, which are often referred to as “badges of fraud”:

a. Whether the transfer or obligation was to an insider;

b. Whether the debtor retained possession or control of the property transferred after the transfer;

c. Whether the transfer or obligation was disclosed or concealed;

d. Whether, before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;

e. Whether the transfer was of substantially all the debtor's assets;

f. Whether the debtor absconded;

g. Whether the debtor removed or concealed assets;

h. Whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;

i. Whether the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;

j. Whether the transfer occurred shortly before or shortly after a substantial debt was incurred; and

k. Whether the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

N.J.S.A. 25:2-26. Where several badges of fraud are present in relation to an allegedly fraudulent transaction, “a strong inference of fraud arises, which a party can rebut using ‘strong, clear evidence’ of a sufficient explanation.” Gilchinsky, 159 N.J. at 476, 484.

How Much Time Do I Have to File a Claim Challenging a Fraudulent Conveyance?

The time to file a claim based upon the Uniform Fraudulent Transfer Act depends upon the type of fraud alleged. N.J.S.A. 25:2-31. A claim alleging that the debtor made a transfer with actual intent to defraud is forfeited unless it is brought within four years of when the transfer was made or the original debt was incurred. After this period, a claim based upon actual intent to defraud is lost unless it is within “one year after the transfer or obligation was discovered by the claimant.” In other words, if the creditor did not know of the allegedly fraudulent transfer, a claim based upon actual intent may still be brought after four years passes if the creditor brings the claim within one year of learning about it. A claim alleging that the debtor made a transfer with constructive intent to defraud must be made within four years after the transfer was made or the obligation was incurred.

New Jersey Litigation Lawyers

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