Transfers of Property between Spouses after a Spouse has been sued or is Insolvent

At Shenwick & Associates, we often get questions from clients if they may transfer a house from one spouse to another after being sued or prior to a bankruptcy filing:

An upstate bankruptcy court addressed this question and held that such a transfer could be a fraudulent conveyance and set aside. The name of the case was In re Tina M. Panepinto, 12-11230. U.S. Bankruptcy Court, Western District 12-11230

In In re Tina M. Panepinto,  a wife  who was insolvent owned a wholly-exempt homestead (house) free-and-clear, and (without consideration) transferred her half ownership to her husband.  The bankruptcy court held that an existing creditor could sustain an action to set that transfer aside as a fraudulent conveyance under New York State law.

Records show that in 2008, with a bill collector seeking to collect a debt, Panepinto transferred half the ownership of her home to her husband. Four years later, she filed for bankruptcy. Creditors challenged the bankruptcy petition, seeking to set aside the transfer of real property as a fraudulent conveyance under New York Debtor and Creditor Law §273. The Bankruptcy Judge sustained the creditors challenge.

The lesson is that a debtor, prior to transferring ownership in a residence should seek advice from an experienced bankruptcy attorney.