Hiding Money From Creditors Can Backfire

A lot of swindlers do their best to hide their assets from creditors. Others hide their assets so they can qualify for government handouts. All of these people lie about what they own but many go a step further and put assets in the name of a family member or other trusted confidante.

When assets are transferred solely to avoid creditors, and if the debtor does not receive something of equal value in exchange, the transfer is known as a fraudulent transfer. If the creditor can establish a fraudulent transfer, the creditor can reach the transferred asset just as if the debtor still owned it.

It can be difficult to uncover fraudulent transfers. It is even harder to trace money that is not deposited in a bank account but, instead, is given to someone to put in their bank account or to buy an investment asset like a house. Often the swindler or person getting government handouts gets what he or she wants and the confidante holds assets for their benefit and will do what they ask.

But sometimes the plan runs aground. That can happen in a myriad of ways.

One way the plan fails is when the confidante has creditor problems and the confidante’s creditors take the assets. That can be from something as unexpected as a car crash.

The confidante can die and the assets end up as part of his or her estate. If the confidante leaves all to others, without even thinking about the swindler’s assets, those others get the goods and the swindler is left out. If the confidante leaves all to the swindler, a creditor may be waiting to pounce once the assets change ownership.

Sometimes the swindler just picks the wrong person or has a falling out so the confidante decides the assets belong to the confidante without any claim by the swindler. When that happens, things do not usually end well for the swindler. The recent case of Perry v. Turner is a great example.

In the Perry case, Perry gave money to his girlfriend Turner to avoid Perry’s creditors. They never married but dated for over 10 years. They lived together in a home Turner bought with money from Perry. Alas, they had a falling out and Turner filed to evict Perry.

Perry was aghast. How could he be evicted from a home for which he supplied all the money to purchase? Worse, Turner owned multiple properties she had purchased with money from Perry as well as financial accounts. Perry wanted it all back, so Perry counterclaimed with equitable claims that money and assets were really his but only titled in Turner under an oral agreement. 

Perry claimed it would not be equitable for Turner to keep “his” wealth.

Turner admitted the assets and accounts were funded by Perry. She explained Perry had given her the assets to keep them away from his creditors. The creditors were not in the case so the only issue for the court was to decide if Perry got the assets or if Turner got to keep them.

Turner did have defenses other than admitting Perry gave her the money and successfully argued those defenses to stop Turner from getting the assets back. What were those defenses?

First, Turner argued that Perry had unclean hands. Unclean hands is a doctrine applicable in equity actions. In equity, someone is seeking relief that would not be recognizable under statute or common law and which would generally not be easily remedied by a money judgment. 

Imposition of a lien or trust was the equitable remedy sought by Perry, so defenses to equitable claims applied. Since equity is asking the court to do what is just, a person seeking equitable relief must not be guilty of wrongdoing. If he is so guilty, he is barred from equitable relief.

Turner had yet another defense. Turner argued that she and Perry were both guilty of wrongdoing under the doctrine of pari delecto. That phrase literally means “in equal fault.” If both parties are guilty of wrongdoing, the court will leave them where it found them and, in this case, the court found them with Turner owning all the assets. It left them there.

The defense in pari delecto requires the court to examine the facts. In most cases, the parties are not equally guilty of wrongdoing one may be the victim of coercion, hardship or undue influence. The court decided Turner was a lot less guilty of wrongdoing than Perry. It was Perry trying to beat his creditors, not Turner. With that, the court handed Turner a victory and left everyone as they were before the lawsuit started. 

As for the eviction, the case does not address the eviction. It is likely Perry moved out so there was no longer an eviction case and the court was left only with deciding if Perry got anything back from Turner.

None of Perry’s creditors were involved in this case. One of those creditors was Perry’s ex-wife, to whom he owed a bunch of unpaid child support. It is quite possible the next court case for Turner will be pursuit by Perry’s ex-wife of assets fraudulently transferred to Turner. Claims to Perry’s former assets may not have ended with his loss to Turner. Those possible claims and claims of other creditors of Perry were not addressed or resolved in the dispute between the former lovers in the Perry case.