Developments in Asset Protection Planning: So You Thought You Were Safe After Four Years?

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Most of us in the asset protection planning arena have assumed that Florida’s four year “clawback” provision gave us comfort to advise clients that in most cases, transfers, even if done with the intent to avoid creditors, were insulated from attack if four years has elapsed.

Oops. The 1st District Court of Appeals in Florida, in the case Biel Reo, LLC v. Barefoot Cottages Development Co., LLC, 156 So.3d 506 (1st DCA 2014) may have thrown a serious cloud over that presumption.

In Bel Rio, two debtors with personal guaranties on a bank loan thought they were engaging in viable asset protection scheme when they set up family trusts and within weeks of the default transferred millions of dollars into them. They figured they were safe since they named themselves and their wives as beneficiaries as tenants by the entireties. They also thought it was a good idea to make their wives the trustees.

The bank got a $4.5 million judgment against the debtors, and assigned the judgment to Bel Rio, who later pursued proceedings supplementary to collect. Florida Statutes §56.29 provides this mechanism for chasing third party recipients or holders of assets that arguably belong to or benefit a judgment debtor. Using that statute, Bel Rio went after the trustee wives. The trustees successfully argued to the lower court that Florida’s Uniform Fraudulent Transfer Act barred the recovery under the principal of laches, but more importantly, based on the statute of limitations in UFTA.

This four year statute of limitations arises from Florida Statutes Section 726.110 which limits recovery of fraudulent transfers: “… within 4 years after the transfer was made or the obligation was incurred or, if later, within 1 year after the transfer or obligation was or could reasonably have been discovered by the claimant.”

The proceedings supplementary statute language is silent on the relevance of the fraudulent transfer statute. It simply says that “… when any gift, transfer, assignment or other conveyance of personal property has been made or contrived by the defendant to delay, hinder or defraud creditors, the court shall order the gift, transfer assignment or other conveyance to be void and direct the sheriff to take the property to satisfy the execution.” Florida Statutes §56.29(6) (b).

The trustees thought they were home free. No such luck, said the first District Court of Appeal:

Although the trustees are correct that the manner of proving and defending fraudulent transfers claims under §56.29 borrow substantively from the UFTA, this fact does not require the adoption of the UFTA’s much shorter limitations period, because the §56.29’s contrary scheme and precedent broadly establishes the availability of proceedings supplementary for the life the judgment, when a valid unsatisfied execution exists. ibid pg 511.

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The moral is that the statute for collections under proceedings supplementary on a judgment are not tied to the fraudulent conveyance statutes of limitations. The judgment holder instead may have the right to pursue transferred assets for the entire 20-year term of the judgment. Transferees thinking they are protected under a four year fraudulent conveyance statute in all events may have to adjust their assumptions. Julianne Frank

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