An interesting case on when interspousal transfers may be considered fraudulent was recently decided in a Connecticut superior court.
The facts are pretty simple. In 2008, Mr. Lilly borrowed $3 million from People’s United Bank for his business, New Park 151 LLC. When New Park stopped making loan payments, People’s United sued New Park and Mr. Lilly to recover the loan’s balance. In 2012, a court awarded the bank a judgment against New Park and Mr. Lilly for $3 million. People’s United then brought a fraudulent transfer lawsuit against Mr. and Mrs. Lilly to recover assets Mr. Lilly transferred to Mrs. Lilly a month after New Park stopped making loan payments but a month before the bank filed suit.
The Lillys argued that the transferred assets were made for “personal financial planning reasons.” Also, even if the “transfer to insider” Badge of Fraud was present, that was not enough to find the transfers fraudulent. The Court disagreed holding that there is no requirement that multiple badges of fraud be present before fraudulent intent can be found.
The case is significant because the Court determined where there is a transfer to an insider a review of each individual badge of fraud is not necessary. Instead fraud can be found in the totality of the circumstances. People’s United Bank v. Lilly.
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