Can a creditor recover money from someone who received it but did not take it?
Sometimes, under voidable transfer law, which acts on the transfer rather than the recipient. In many states the governing statute is the Uniform Voidable Transactions Act, completed by the Uniform Law Commission in 2014 as amendments to the Uniform Fraudulent Transfer Act. The rename tracks the substance: a transfer can be voidable under the act without any showing that anyone intended to defraud anybody, because the constructive route turns on value and financial condition rather than on intent. California’s enactment says so on its face — the chapter beginning at Civil Code section 3439 “may be cited as the Uniform Voidable Transactions Act” — as do New York’s Debtor and Creditor Law article 10, Minnesota Statutes section 513.51 and North Carolina General Statutes section 39-23.12. Not every state has moved. In the First Circuit decision discussed below the court applied Massachusetts General Laws chapter 109A, the Uniform Fraudulent Transfer Act.
In bankruptcy there are two routes and they are not the same length. 11 U.S.C. section 548 gives the trustee an avoidance power of its own. Section 544(b)(1) lets the trustee avoid any transfer “that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502,” which means borrowing the state statute and, ordinarily, its longer reach-back.
Say precisely what this is and is not. A voidable transfer claim asks whether a transfer may be set aside or its value recovered. It is not a finding that the recipient did anything, and the statutes make the recipient’s own conduct relevant only through the defenses. Nothing here states or implies that any transfer was improper or that any person did anything wrong; those are for a court on a record.
What is the difference between actual intent and constructive intent, and what are the badges of fraud?
Two independent routes sit in one section. The first asks about the debtor’s intent: California Civil Code section 3439.04(a)(1) makes a transfer voidable if the debtor made it “[w]ith actual intent to hinder, delay, or defraud any creditor of the debtor,” and New York Debtor and Creditor Law section 273(a)(1) uses the same words without the serial comma, “with actual intent to hinder, delay or defraud any creditor of the debtor.” The second asks nothing about anyone’s state of mind: under California Civil Code section 3439.04(a)(2) and section 3439.05, and the parallel New York provisions, a transfer is voidable where the debtor did not receive a reasonably equivalent value and was insolvent, was left with unreasonably small assets, or should have believed it would incur debts beyond its ability to pay. The constructive route usually reaches a family transfer, because it does not require proving what anybody was thinking.
Where actual intent is asserted, the statutes supply a list of factors, and the list is not the same everywhere. California Civil Code section 3439.04(b) sets out eleven factors; North Carolina General Statutes section 39-23.4(b) sets out thirteen. The first factor in both is whether the transfer was to an insider. Others include whether the debtor retained control of the property, whether the transfer was concealed, whether it followed a suit or threat of suit, whether it was of substantially all the debtor’s assets, and the timing relative to a substantial debt.
Family is not incidental to that list — it is the first item on it. New York Debtor and Creditor Law section 270(h) makes a relative of an individual debtor an insider, and section 270(n) defines a relative as “an individual related by consanguinity within the third degree as determined by the common law, a spouse or an individual related to a spouse within the third degree as so determined,” and “includes an individual in an adoptive relationship within the third degree.” The burden is in the statutes too: California Civil Code section 3439.04(c) and New York section 273(c) both put the elements on the creditor by a preponderance of the evidence. A badge is a thing a record can show; it is not a conclusion about intent, and an accountant should say which of the two he is offering — see Can a forensic accountant just say it was fraud?.
If a family member received a gift, did they give reasonably equivalent value?
A gift is the paradigm case of a transfer for no value, and the statutes define value narrowly enough to make that plain. California Civil Code section 3439.03 provides that value is given “if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied,” while providing that value “does not include an unperformed promise made otherwise than in the ordinary course of the promisor’s business to furnish support to the debtor or another person.” Nothing in that definition reaches affection or family expectation.
The federal courts have said so in the setting where the question is most sympathetic. In DeGiacomo v. Sacred Heart University, Inc. (In re Palladino), 942 F.3d 55, No. 17-1334, decided 12 November 2019, the United States Court of Appeals for the First Circuit reversed a summary judgment that had let Sacred Heart University keep tuition the parents had paid for their adult daughter, holding that the parents did not receive reasonably equivalent value in exchange, and applying 11 U.S.C. section 548(a)(1)(B)(i) and the Massachusetts Uniform Fraudulent Transfer Act, Massachusetts General Laws chapter 109A. The parental expectation of funding a child’s education, the court reasoned, conferred no economic benefit on the creditors and fell within none of the statutory categories of value.
Read that for what it decides. It holds that intangible family benefits are not value for purposes of a constructive voidable transfer claim. It says nothing about whether the recipient knew anything, and a claim on the constructive route never has to. That is why these claims are argued from bank records, deeds and closing statements rather than from testimony about what a family understood — the records exercise described in Clawback & Distribution.
Is there a defense for a family member who received the money in good faith?
There is, and it is narrow because it requires good faith and value together. California Civil Code section 3439.08(a) provides that a transfer is not voidable on the actual-intent route “against a person that took in good faith and for a reasonably equivalent value.” New York Debtor and Creditor Law section 277(a) is the same in substance. In bankruptcy, 11 U.S.C. section 548(c) gives a transferee that took for value and in good faith a lien on or the right to retain the interest transferred to the extent of the value given.
The good faith half alone does not carry a recipient who gave nothing. That is the asymmetry in these cases: a family member who paid market price and knew nothing has a real defense, while one who received a gift has good faith and no value, and the defense requires both.
Where the money moved twice, the law distinguishes the first pair of hands from the later ones. Under 11 U.S.C. section 550(a) a trustee may recover from the initial transferee or the entity for whose benefit the transfer was made, or from any immediate or mediate transferee of that initial transferee — but section 550(b)(1) protects a later transferee that takes “for value, including satisfaction or securing of a present or antecedent debt, in good faith, and without knowledge of the voidability of the transfer avoided,” and section 550(b)(2) protects good faith transferees downstream of that person. New York Debtor and Creditor Law section 277(b) draws the same line. Which category a recipient falls in is a records question first.
How far back can a transfer be reached?
It depends on which statute is being used, and the periods are not close to one another. 11 U.S.C. section 548(a)(1) reaches transfers made or obligations incurred “on or within 2 years before the date of the filing of the petition.” Section 548(e) extends to ten years for transfers to a self-settled trust or similar device made with actual intent to hinder, delay, or defraud. A trustee who needs more than two years goes to section 544(b)(1) and borrows the state statute.
The state periods vary, including between two states that enacted the same uniform act. California Civil Code section 3439.09 allows four years after the transfer or, if later, one year after the transfer was or could reasonably have been discovered — and then extinguishes any claim under the chapter if no action is brought or levy made within seven years of the transfer, whatever the discovery date. New York Debtor and Creditor Law section 278 carries the same four-year and one-year discovery periods, and a one-year period for certain claims, with no seven-year outer limit. Naming the state is not a formality here. It is the difference between a live claim and a dead one.
These periods are why sequence matters more here than in most litigation. The lookback runs from the transfer, not from the day anyone found out, and the records that would establish what a transfer was and what came back for it are on their own retention clocks — Bank Secrecy Act records need only be retained five years under 31 CFR section 1010.430(d). How do you prove theft of something that was never recorded? covers the reconstruction when the internal records are the problem.
Does it change anything if the money went into a jointly held home or a homestead?
It can change everything, and this is the most state-specific part of the analysis. Tenancy by the entirety is available only to married couples in states that recognize it, and property held that way is generally beyond the reach of a creditor of one spouse alone. The Bankruptcy Code defers to that: 11 U.S.C. section 522(b)(3)(B) lets a debtor exempt an interest held immediately before the case as a tenant by the entirety or joint tenant “to the extent that such interest … is exempt from process under applicable nonbankruptcy law.” In Beal Bank, SSB v. Almand and Associates, 780 So. 2d 45 (Fla. 2001), the Florida Supreme Court held that an account opened by a husband and wife carries a presumption of tenancy by the entireties where the unities of possession, interest, title and time are present and the signature card does not express a contrary intent, shifting to the creditor the burden of proving by a preponderance of the evidence that no such tenancy was created.
The protection is not absolute even where it exists. In United States v. Craft, 535 U.S. 274 (2002), the Supreme Court held that a husband’s interest in Michigan entireties property was “property” or “rights to property” reachable by a federal tax lien under 26 U.S.C. section 6321, notwithstanding Michigan’s characterization of the estate. And a transfer into entireties ownership is itself a transfer, which is where the voidable transfer analysis re-enters.
Homestead protection runs on a separate track. The Florida Supreme Court held in Havoco of America, Ltd. v. Hill, 790 So. 2d 1018 (Fla. 2001) that converting nonexempt assets into a Florida homestead with the specific intent to hinder, delay or defraud creditors is not among the three exceptions to the homestead exemption in article X, section 4 of the Florida Constitution — while leaving intact the separate equitable lien route where proceeds of fraud or reprehensible conduct were used to invest in, purchase or improve the homestead. That is Florida’s answer, not every state’s. Two federal provisions sit on top of it in bankruptcy: 11 U.S.C. section 522(o) reduces the value of a residence to the extent it is attributable to property the debtor disposed of within ten years before the petition with intent to hinder, delay or defraud a creditor, and section 522(p)(1) caps what may be exempted from an interest acquired during the 1215 days before the petition. What any of this is worth is a separate question from what can be reached, and belongs to our Economic Damages Institute.