Timing the Transfers

April 13, 2006

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The Uniform Fraudulent Transfers Act (UFTA) has a four-year statute of limitations (although some states apply a shorter period) regarding challenges to asset transfers. Thus, if more than four years have elapsed since a transfer, ordinarily the transfer will be beyond challenge.

Clearly, there is an advantage to planning any transfers before a business is formed, or at least while a business is thriving; once four years have passed, your transfers will be "safe." With transfers that occur in the midst of a financial crisis, it is doubtful that four years will elapse before the transfer is challenged.

However, this is not to say that effective transfers cannot be made within the four years preceding a challenge. In that case, however, the transfer will be open to court scrutiny regarding constructive fraud and actual fraud under the UFTA, and you will have to be able to justify it. This is where motive (or intent) and solvency become the important factors. In contrast, transfers made more than four years prior to a challenge will not be subject to court examination.

In addition, the federal bankruptcy code has its own set of rules regarding the timing of transfers, and many states have time limitations as well.