Arizona law prohibits “fraudulent transfers.”  “Transfer” means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset and includes payment of money, release, lease and creation of a lien or other encumbrance.

Intent to Hinder, Delay or Defraud

A transfer made or an obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation under any of the following conditions:

1. With actual intent to hinder, delay or defraud any creditor of the debtor.

2. Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor either:

(a) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction.

(b) Intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due.

Badges of Fraud

There are several “badges of fraud,” or elements which tend to indicate that the transfer was fraudulent.  Courts look to see whether any of the following occurred:

1. The transfer or obligation was to an insider.

2. The debtor retained possession or control of the property transferred after the transfer.

3. The transfer or obligation was disclosed or concealed.

4. Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit.

5. The transfer was of substantially all of the debtor’s assets.

6. The debtor absconded.

7. The debtor removed or concealed assets.

8. 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.

9. The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred.

10. The transfer occurred shortly before or shortly after a substantial debt was incurred.

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

If one or more of these things happened, a court may determine that the transfer was a fraudulent transfer.  The Court has the power to set aside the transfer, allow a creditor to seize the property, and assess costs and attorney’s fees.

If you are considering whether to transfer assets to someone else in order to protect the assets from an actual or potential creditor, DON’T do it unless you receive advice from an experienced, competent attorney.  It may be unlawful and when you get caught, bad things are likely to happen.  There are lawful ways to protect assets.