Florida Business Litigation Lawyer Blog
The Florida Uniform Fraudulent Transfer Act (“FUFTA”) is a powerful tool because it provides creditors with remedies against debtors attempting to conceal assets. Through FUFTA, Florida adopted a Uniform Fraudulent Transfer Act that many states adopted. FUFTA allows creditors to sue debtors trying to avoid paying a debt. Peter Mavrick is a Fort Lauderdale business litigation attorney. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.
FUFTA provides two different theories for a claim of fraudulent transfer: actual fraud and constructive fraud. The “actual fraud” theory applies when a debtor conveys an asset or accepts an obligation with actual intent to hinder a creditor. Myers v. Brook, 708 So. 2d 607 (Fla. 2d DCA 1998) (citing Fla. Stat. § 726.105). Because actual intent can be difficult to prove, the creditor can establish various “badges of fraud” to demonstrate a debtor’s fraudulent intent. Fla. Stat. § 726.105. These badges can include the following:
- Whether the transfer or obligation was to an insider, which includes individuals or business entities related to or associated with the debtor. See Stat. § 726.102(8).
- Whether the debtor retained possession or control of the property transferred after the transfer. For example, if the debtor executes documentation transferring property but retains the property.
- Whether the transfer or obligation was disclosed or concealed.
- Whether before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit.
- Whether the transfer was of substantially all the debtor’s assets.
- Whether the debtor absconded. Avoiding service of a lawsuit can be evidence of absconding. Mane FL Corp. v. Beckman, 355 So. 3d 418 (Fla. 4th DCA 2023).
- Whether the debtor removed or concealed assets.
- Whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred. Often, in a fraudulent transfer, the benefit, which can be money, property, or otherwise, that the debtor receives in exchange for the transfer is much lower than the value of the property transferred.
- Whether the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred.
- Whether the transfer occurred shortly before or shortly after a substantial debt was incurred.
- Whether the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.
The second theory is “constructive fraud.” Here, the debtor conveys an asset or incurs an obligation without receiving a reasonably equivalent value in exchange and (1) engaged in a transaction for which the remaining assets of the debtor were unreasonably small in relation to the transaction or (2) intended to incur debts beyond his or her ability to pay when they became due. Myers, 708 So. 2d 617 (citing Fla. Stat. § 726.105).
A creditor can be entitled to broad remedies if he or she successfully establishes a fraudulent transfer. These remedies include avoiding the transfer, attachment against the property transferred, injunction against further disposition of property, appointment of a receiver to prevent waste, or any other relief the circumstances require. Fla. Stat. § 726.108. In fact, some appellate courts in Florida determined the catchall phrase “any other relief the circumstances may require” permits the creditor to obtain damages against a transferor in a fraudulent transfer action. Hansard Const. Corp. v. Rite Aid of Florida, Inc., 783 So. 2d 307 (Fla. 4th DCA 2001); McCalla v. E.C. Kenyon Const. Co., Inc., 183 So. 3d 1192 (Fla. 1st DCA 2016).
If you are a creditor and the debtor has attempted to avoid paying you by transferring property, or if you are a debtor accused of a fraudulent transfer, you should hire an experienced attorney to represent you as soon as possible.
Peter Mavrick is a Fort Lauderdale business litigation lawyer, and represents clients in Miami, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.