This is my fourth post in a series on UFTA. Running afoul of UFTA will bust any asset protection plan, so familiarity with it is crucial. You can read my first three posts about UFTA here, here, and here.
In my previous three posts, I have discussed what UFTA is and how to avoid running afoul of it. This post will discuss what happens if an UFTA violation does take place. You will see from the broad remedies available to creditors why avoiding UFTA problems is such a big deal.
The remedies of creditors under UFTA are defined in N.J.S.A. 25:2-29:
a. In an action for relief against a transfer or obligation under this article, a creditor, subject to the limitations in R.S. 25:2-30, may obtain:
(1) Avoidance of the transfer or obligation to the extent necessary to satisfy the creditor’s claim;
(2) An attachment or other provisional remedy against the asset transferred or other property of the transferee in accordance with the procedure prescribed by Chapter 26 of Title 2A of the New Jersey Statutes and by Rule 4:60 et seq. of the Rules Governing the Courts of the State of New Jersey;
(3) Subject to applicable principles of equity and in accordance with applicable rules of civil procedure, (a) An injunction against further disposition by the debtor or transferee, or both, of the asset transferred or of other property; (b) Appointment of a receiver to take charge of the asset transferred or of other property of the transferee; or (c) Any other relief the circumstances may require.
b. If a creditor has obtained a judgment on a claim against the debtor, the creditor, if the court so orders, may levy execution on the asset transferred or its proceeds.
Remedies are further defined in N.J.S.A. 25:2-30:
a. A transfer or obligation is not voidable under subsection a. of R.S. 25:2-25 against a person who took in good faith and for a reasonably equivalent value or against any subsequent transferee or obligee.
b. Except as otherwise provided in this section, to the extent a transfer is voidable in an action by a creditor under paragraph (1) of subsection a. of R.S. 25:2-29, the creditor may recover judgment for the value of the asset transferred, as adjusted under subsection c. of this section, or the amount necessary to satisfy the creditor’s claim, whichever is less. The judgment may be entered against: (1) The first transferee of the asset or the person for whose benefit the transfer was made; or (2) Any subsequent transferee other than a good-faith transferee who took for value or from any subsequent transferee.
c. If the judgment under subsection b. of this section is based upon the value of the asset transferred, the judgment shall be for an amount equal to the value of the asset at the time of the transfer, subject to adjustment as the equities may require.
d. Notwithstanding voidability of a transfer or an obligation under this article, a good-faith transferee or obligee is entitled, to the extent of the value given the debtor for the transfer or obligation, to (1) A lien on or a right to retain any interest in the asset transferred; (2) Enforcement of any obligation incurred; or (3) A reduction in the amount of the liability on the judgment.
f. A transfer is not voidable under subsection b. of R.S. 25:2-27:(1) To the extent the insider gave new value to or for the benefit of the debtor after the transfer was made unless the new value was secured by a valid lien;(2) If made in the ordinary course of business or financial affairs of the debtor and the insider; or (3) If made pursuant to a good-faith effort to rehabilitate the debtor and the transfer secured present value given for that purpose as well as an antecedent debt of the debtor.
We can break these two statutory sections down to the following simple points:
- If you violate UFTA, the court can either undo the transfer or just levy the transferred assets directly from the transferee.
- It doesn’t matter if the transferee did nothing wrong or didn’t know that UFTA was being violated. The court can still take his assets. NJ DEP v. Caldeira, 338 N.J. Super. 203, 224 (App.Div. 2001), rev’d on other grounds, 171 N.J. 404 (2002). This is pretty scary.
- If the transferee has already disposed of the assets, the court can enter a judgment against him for the value of the assets he originally received from the debtor. This is also pretty scary.
- In general, the only good defense a subsequent transferee has is that he took the assets in good faith AND gave reasonable value back to the debtor in exchange for them. The burden is on the transferee to prove this. NJ DEP v. Caldeira, 338 N.J. Super. at 224.
- If the above remedies aren’t enough, a judge can cook up another equitable remedy if “circumstances require”.
Considering the breadth of the remedies involved and the path of destruction those remedies can leave behind, you can see why complying with UFTA is so important and why I spend so much time on it with my clients. Contact me with any questions you might have.
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