One of the best parts of practicing law is performing well in Court and obtaining a Judgement in favor of a Client. Once Final Judgment is obtained the next step is to collect. Sometimes this is a straightforward process; the traditional remedies of garnishment and execution produce results and the judgment is satisfied. Many times, however, it is not so easy. An investigator may be needed to locate income and non-exempt assets from which the judgment can be paid. The investigator must search not only for assets that are currently owned but also for assets that were formerly owned. Transfers by a judgment debtor need to be carefully scrutinized. It is common for debtors to try to protect assets by transferring them out of their personal names. Where a transfer is fraudulent, the asset transferred can often be recovered.
Arizona’s Uniform Fraudulent Transfer Act is found at ARS 44-1001 et. seq. Essentially, Arizona’s law states that a transfer is fraudulent as to a creditor if it was made with the actual intent to hinder, delay or defraud. A transfer is also fraudulent if it was made without receiving a reasonably equivalent value in exchange and the transferor was either insolvent at the time or was rendered insolvent as a result of the transfer.
When a transfer has been shown to be fraudulent, a creditor has many remedies. A creditor can seize the asset transferred by a garnishment against the fraudulent transferee or by an attachment against the asset transferred. A separate action can be filed to avoid and reverse the transfer and a receiver can be appointed to take charge of the asset transferred.
Proof of intent to defraud is often difficult, but ARS 44-1004 (B) is of help. It sets forth circumstances called “badges of fraud” that a Court can consider in deciding whether actual intent to defraud existed. The statute provides, in pertinent part, that:
- In determining actual intent under subsection A, paragraph 1, consideration may be given, among other factors, to whether:
- The transfer or obligation was to an insider.
- The debtor retained possession or control of the property after the transfer.
- The transfer or obligation was disclosed or concealed.
- Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit.
- The transfer was of substantially all of the debtor’s assets.
- The debtor absconded.
- The debtor removed or concealed assets.
- 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.
- The debtor was insolvent or become insolvent shortly after the transfer was made or obligation was incurred.
- The transfer occurred shortly before or shortly after a substantial debt was incurred.
- The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.
A good investigator and good collection attorney are invaluable in the search for hidden assets. If you have a tough collection problem, consult with one of our collection attorneys before you write off your judgment as uncollectable.