Skip to main content

Firmani v. Firmani

332 N.J. Super. 118, 752 A.2d 854 (App. Div. 2000)

PARTNERSHIPS; FRAUDULENT TRANSFERS—Transferring assets to a limited partnership can be a fraudulent transfer because to do so doesn’t merely change the form of an asset, but can result in delay to a creditor seeking to collect a debt.

Pursuant to a marital settlement agreement, a husband obtained sole ownership of a property that had been jointly owned. In return, he agreed to pay his ex-wife an immediate sum of money and to pay the balance over the next three years. When the final payment was not made, the wife obtained a judgment. Shortly before the expiration of the three-year period, the husband established a family limited partnership and conveyed the property to the entity. He retained a one percent general partnership interest and a ninety-four percent limited partnership interest. He continued to reside at the property and operate his business from there. One of his own corporations paid the mortgage obligation as well as other expenses for the property. The ex-wife brought an action to set aside the conveyance of the property on the ground that it was a fraudulent transfer designed to avoid enforcement of the ex-husband’s obligation under the money judgment. The Court noted that a transfer made by a debtor is fraudulent when made “[w]ith actual intent to hinder, delay, or defraud any creditor of the debtor ... .” N.J.S. 25:2-26 “sets forth a non-exhaustive list of eleven factors, referred to as ‘badges of fraud,’ that a court may consider in determining whether a party has established an actual intent to hinder, delay, or defraud ... .” Although the presence of a single factor may cast suspicion on a transferor’s intent, “the confluence of several in one transaction generally provides conclusive evidence of an actual intent to defraud.” Here, the Court was satisfied that the conveyance manifested at lease five of the “badges of fraud.” The ex-husband was the sole general partner and primary limited partner of the entity prior to the conveyance, and therefore the conveyance was made to an insider. By continuing to use the property as a residence and a place of business, and as the sole general partner, the ex-husband clearly retained possession and control of the property after the conveyance. There was no doubt or dispute that the money was owed and the ex-husband knew or should have known that absent voluntary payment, an enforcement action probably would be brought. By putting the ex-wife in a position where she could only recover the money owed through the limited partnership charging process, the ex-husband “removed ... assets.” The Court could discern no legitimate basis for the transaction, rejecting the ex-husband’s argument that it was for estate planning purposes. While the ex-husband argued that the transfer did not deprive his ex-wife of assets sufficient to satisfy the judgment, but merely changed the asset, the Court responded that because the judgment creditor of a partner has only the rights of an assignee of a partnership interest, the process of collecting a judgment against such an asset would be subject to great delay. To secure a charge against the ex-husband’s partnership interest, the ex-wife would have to wait until a distribution was made before she could collect any money, and, the ex-husband, as the only general partner, had sole discretion as to distributions. The partnership was not set to terminate for at least thirty years. Consequently, the conveyance of the property itself to the family partnership served to greatly hinder and delay the ex-wife’s ability to collect the debt owed by her ex-husband. As a result, the Court concluded that the conveyance was fraudulent and affirmed the lower court’s direction that the property be reconveyed by the partnership to the husband.

66 Park Street • Montclair, New Jersey 07042
tel: 973-783-3000 • fax: 973-744-5757 •