Understanding Fraudulent Conveyance in Asset Protection

Fraudulent conveyance is one of the most misunderstood concepts in asset protection. Many investors, business owners, and professionals worry that transferring assets into a trust or asset protection structure will be viewed as fraudulent if they face lawsuits. The truth? Fraudulent conveyance isn’t just about moving assets—it’s about intent and creditor impact.

In this article, we’ll break down what fraudulent conveyance actually means, how courts analyze intent, and how asset protection planning can be done legally and effectively.

What Is Fraudulent Conveyance?

Fraudulent conveyance occurs when someone transfers assets with the intent to hinder, delay, or defraud creditors. But not all transfers are fraudulent—intent and timing are key.

🚨 A transfer is NOT fraudulent if:

✔ There is no intent to defraud a creditor.

✔ There is no actual creditor harmed by the transfer.

✔ The person making the transfer is still solvent after the transfer.

Courts look at why the transfer was made, not just the fact that assets were moved. Proactive planning is legal. Last-minute transfers in the face of a lawsuit? That’s when problems arise.

Real-World Examples of Fraudulent Conveyance

Example #1: The Charitable Donation That Became a Problem

📌 Mr. Jones: A real estate investor with $6M in assets and $4.5M in debt.

📌 He commits to donating $100K to charity in January.

📌 By May, the market crashes, and his assets drop to $4M—making him insolvent.

Can Mr. Jones still make the donation?

✔ YES—Because he made the commitment when he was solvent and had no intent to defraud creditors.

❌ NO—If he suddenly increases the donation to $1M after becoming insolvent, as this suggests an intent to shield assets.

💡 Lesson: The key issue is intent. A transfer made in good faith before financial trouble arises is typically not fraudulent.

Example #2: The Doctor Facing a Malpractice Lawsuit

📌 Dr. Smith: Owns $3M in assets and is being sued for medical malpractice.

📌 His insurance is covering him, but the case could exceed his policy limits.

Can Dr. Smith still set up an asset protection trust?

✔ YES—If his expected liability is within his insurance coverage, he can proceed with planning.

❌ MAYBE—If potential damages could exceed $5M, courts might see last-minute asset transfers as fraudulent.

💡 Lesson: Early planning is key. Asset protection works best when set up before a lawsuit arises.

Example #3: Business Owner Considering Divorce and Asset Protection

📌 Mr. Green: A business owner with $9M in assets considering asset protection.

📌 He’s been married for 25 years, and his wife has a $500K IRA.

Can Mr. Green move assets into a trust to protect them from divorce claims?

❌ NO—If done just before filing for divorce, courts will likely see it as fraudulent.

✔ YES—If he separates assets over time, includes his wife in planning, or sets up a trust long before a divorce is on the horizon.

💡 Lesson: Timing and transparency matter. Trying to hide assets before a divorce is risky, but long-term planning is legitimate.

How to Avoid Fraudulent Conveyance in Asset Protection

If you want to legally protect your assets, follow these best practices:

✅ Plan Ahead – The best time for asset protection is before a lawsuit, not after.

✅ Stay Solvent – Never move assets in a way that leaves you unable to pay existing debts.

✅ Use Trusts Properly – A Bridge Trust® or offshore trust offers protection, but transfers must be done before legal trouble arises.

✅ Keep Clear Records – Courts analyze intent. Having legal and financial documentation helps prove legitimate planning.

🚨 What NOT to do:

❌ Suddenly transfer all assets when facing a lawsuit.

❌ Move assets to family members without clear legal structure.

❌ Drain accounts or overfund trusts right before a judgment.

Final Thoughts: Plan Smart, Plan Early

✔ Fraudulent conveyance isn’t just about moving assets—it’s about intent and timing.

✔ Asset protection must be proactive, not reactive.

✔ Courts recognize legitimate estate and asset planning—but last-minute moves before a lawsuit can backfire.

📌 The bottom line? If you wait until you’re in legal trouble, it may be too late. Start planning early with a proper asset protection strategy.