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New Jersey Uniform Fraudulent Transfer Act

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The New Jersey Uniform Fraudulent Transfer Act is designed to prevent debtors from secretly transferring assets to another party - often a family member - for the purpose of avoiding payment to creditors. The Act sets forth two types of fraudulent transfer: one is actual fraud, which requires a showing of true fraudulent intent, while the other is constructive fraud, which can result is a finding of liability even in the absence of actual fraudulent intent.

With the actual fraud type of case, the creditor must show that the debtor actually intended to hide the assets and cheat or defraud the creditors. The statute sets forth some so-called "badges of fraud" that courts may use to help determine if actual fraud occurred. These badges of fraud include whether:

a. the transfer was to an insider (such as a family member);

b. the debtor retained possession or control of the property transferred after the transfer;

c. the transfer was disclosed;

d. before the transfer was made, the debtor had been sued or threatened with suit;

e. the transfer was of substantially all the debtor's assets;

f. the debtor absconded or ran away;

g. the debtor removed or concealed assets;

h. the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred;

i. the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;

j. the transfer occurred shortly before or shortly after a substantial debt was incurred; and

k. the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

A second type of fraudulent transfer can occur through "constructive" fraud as long as certain factors are present, even if there was no actual intent to defraud. These situations arise:

a. if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation; or

b. if the transfer was made to an insider for an prior debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.

Both types of fraudulent transfer are often charged as the same facts could cover both actions, as in the case of a transfer to an insider when the debtor is or becomes insolvent. But there is an important difference.

The Act extinguishes (or stops the ability to sue on) constructive fraud causes of action either one year or four years after the transfer (depending on the form of the constructive fraud claimed), regardless of when the transfer was discovered. By contrast, in actual fraud cases, the four year extinguishment applies, but if the transfer is discovered later, the plaintiff has an additional year from discovery to bring the action.

Fraudulent transfer actions often arise in collection actions. If you have been the victim of someone whom you believe has fraudulently transferred assets to your detriment or if someone is accusing you of hiding assets in violation of the Act, seek experienced counsel as the stakes in this type of action are quite high.

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The Hartmann Law Firm LLC

56 Ellison Rd
Watchung, NJ 07069
Telephone: 908-731-6976 
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