News from AICPA/AAML divorce conference: Don’t chase the owner—chase the asset

In high-conflict divorce cases, there will always be some business owners who would rather deplete their net worth by transferring assets to their children (or a new spouse) to avoid paying their exes, then claim “drastically changed circumstances” prevents them from complying with court-ordered support or property distribution. Rather than spending precious time and funds chasing the “bad” spouse, says attorney Andrew Schwartz (Schwartz & Kanyock), “chase the asset” and sue the transferee under your state’s version of the Uniform Fraudulent Transfer Act (UFTA) or similar creditors’ rights statute.

The UFTA, for instance, permits creditors to sue debtors as well as any other party who received property from the debtor in an allegedly fraudulent transfer, Schwartz explained to a packed session of attorneys and business appraisers at last week’s AICPA/AAML National Conference on Divorce in Las Vegas. The uniform laws also permit the creditor (an ex-spouse in divorce) to get an injunction against further disposition of the property by the transferor and/or the transferee, who should both be made parties to the suit. Since proving actual intent to defraud is difficult, UFTA also permits the creditor to show “badges” of fraud, such as a transfer for lack of reasonably equivalent value. “If there are any questions about reasonably equivalent value,” Schwartz told the audience, “get a certified expert.” A forensic accountant or BV expert is also going to be “far better at digging through the financial evidence to find the asset.”

Suggest UFTA to your attorney. In a subsequent session on divorce cases that turn into that dreaded “black hole” of cash and conflict, attorney Joy Feinberg (Feinberg & Barry) told of a recent suit in which the business-owning spouse stood in front of the judge and said, “If you make me pay that, I’m turning over my business to my girlfriend,” and “so help me, he did,” Feinberg said. Now that she knows more about UFTA remedies, she plans on using them to recover assets from “bad” spouses in the future.