Judgment creditor is pulling my son although he is not involved in lawsuit

[tbonesays]

Making a bona fide loan with an interest charge is not a fraudulent transfer. It would be a fraudulent transfer if you made the loan and never intended to enforce it or planned to simply forgive the loan later, i.e. the loan was really a disguised gift. Since the son indeed repaid the loan with interest there is clearly no fraudulent transfer here and the creditor should not succeed in any effort it makes to pursue your son for it.



That payment of tuition and fees, on the other hand, would be potentially fraudulent transfer because you in effect made a gift to your son of the $15,000. It is no different than had you given Jim the cash and Jim paid the tuition and fees himself. You made the transfer and got nothing back of equivalent value in return at a time that you were insolvent, which is the basic description of a fraudulent transfer. So the creditor might well succeed in getting a court to order your son to return the $15,000 to you so it can take that money to satisfy the judgment against you. Whether it will succeed depends on exactly what is presented to the court, so there's no way for me to predict the outcome of that.

The money went directly to the college. Wouldn't the court have to order the college to return the money? And does that ever happen?

 

[LdiJ]

The money went directly to the college. Wouldn't the court have to order the college to return the money? And does that ever happen?

Its a moot point here because the money was already returned by your son.

 

[Taxing Matters]

Its a moot point here because the money was already returned by your son.

I think not. The OP made a loan to one son of $12,000 that was repaid. That's not what he's asking about. He/she also paid the tuition and fees for another son, and the son has not repaid that. Note the part that I bolded:

For another son, Jim, I directly paid the fee for few semesters totaling 15000 dollars. The payment directly went to his college, he did not receive any. Is he also responsible for that payment. The college fee for jim was also paid when the lawsuit was pending, and Jim did not pay me back any money in return to that college fee. Will Jim be also be dragged into this matter although plaintiff did not say anything about Jim until now.

And now, turning to the question that tbonesays asked:

The money went directly to the college. Wouldn't the court have to order the college to return the money?

No, if the court determined it was a fraudulent conveyance the court would order your son to return the money, not the college. You didn't make a gift to the college; you made a gift to your son of the payment of his college tuition and fees. It is no different than had you handed the kid the cash and he went to the bursar's office (or whatever his college calls it) and paid the bill.

 

[Litigator22]

. . And now, turning to the question that tbonesays asked:

Q: "The money went directly to the college. Wouldn't the court have to order the college to return the money?"

You answered No, if the court determined it was a fraudulent conveyance the court would order your son to return the money, not the college.

Pardon me for saying so but you are evidencing some short comings on the subject of creditors "clawing back" tuition expenses paid by an insolvent parent; to-wit:

1. The court would order your son to return the tuition fees? Not so in the state of California. See: Lo vs. Lee * - California First District Court of Appeals - San Francisco June 2018 - Link: https://law.justia.com/cases/california/court-of-appeal/2018/a151603.html

There the plaintiff David Lo brought an action against Daniel Lee and his adult son Tristan under California's Uniform Voidable Transfer Act (UVTA) (Civil Code 3439) seeking general damages in the sum of $104,850 representing tuition and other expenses paid Northeast University by Lee on behalf of the son Tristan. The complaint alleged that at the times said tuition fees and expenses were paid to the University Lee knew that he had incurred debts that he was unable to pay as they became due, including an unsatisfied judgement in favor of Lo in the amount of $1.4M.

The appellate court sustained the lower court's dismissal of the complaint with prejudice as to each father and son.

As to the parent being adequately compensated:

"A parent can reasonably assume that payment for a child to obtain an undergraduate degree will enhance the financial well being of the child, which will in turn confer an economic benefit on the parent. "

As to the student child's liability as a beneficial transferee within the meaning of the Uniform Voidable Transfer Act? Nope! Not in CA.

"The court's obligation is to look behind the form of the transaction and which entity actually benefited from the transfer. (cases cited). Contrary to the plaintiff's suggestion the fact that a person receives any kind of benefit from the transfer, no matter how intangible or indirect, does not necessarily subject that person to liability.

"The benefit received must be 'direct, ascertainable and quantifiable'. And it must bear a necessary correspondence to the value of the property transferred." (cases cited)

"A transfer beneficiary status depends on three aspects of the transfer:

(1) It must have actually been received by the beneficiary.

(2) It must be quantifiable.

(3) It must be accessible to the beneficiary." (cases cited)

"A mere theoretical benefit is not sufficient since it would not be subject to disgorgement. Clearly there is no way to quantify the intellectual and associated benefits." Noting that Lee's son "had no control (dominion) over the funds".
______________________

2. The court would NOT order the college to return the tuition fee?

That may or may not be so. It would not hold true were the courts in the OP's home state to adopt as precedent the ruling in United States Court of Appeals decision in DeGiacomo v. Sacred Heart Univ. Inc. (In re Palladino) US Court of Appeals 1st Circuit No.17-1334 (2019 Mass.) https://cases.justia.com/federal/appellate-courts/ca1/17-1334/17-1334-2019-11-12.pdf?ts=1573590604

There the trustee in bankruptcy, acting under the "strong-arm" powers conferred under Section 548(a)(1)(B)(i) of the Bankruptcy Code and Massachusetts' similar Uniform Voidable Transfer Act was allowed to "claw back" from Sacred Heart University the sum of $64,656 in the form of tuition fees paid by the then insolvent debtors on behalf of their daughter.

(Also notably here is the absence of any effort by the trustee to recover anything from the from the debtors' daughter or join her in the adversary action.)
______________________________

In assessing the value and persuasiveness of the federal decisions under the claw back provisions in the Bankruptcy Code as affecting decisions under the states' uniform acts (UFTA and/or UVTA) one needs to be mindful of the similarities in those laws. Also the greater volume of cases. All as noted in Lo vs. Lee.

 

[Taxing Matters]

As to the parent being adequately compensated:

"A parent can reasonably assume that payment for a child to obtain an undergraduate degree will enhance the financial well being of the child, which will in turn confer an economic benefit on the parent. "

However, the OP is NOT in CA. My guess is that you are in California and that as a result California law is what you are most familiar with. I would say to you that it is best to remember that CA is very much to the left of most states (physically, politically, and legally) and the opinions of CA state courts are not always representative of the law in other states. For example, the argument above that the CA court advanced would not fly in my state and I suspect might not fly in Florida, where the OP is located, either. Indeed, I find the court's logic on that point to be strained at best since it is highly speculative that a college age child will later confer any "economic benefit" on the parent, let alone in amount that would represent fair value.

Pardon me for saying so but you are evidencing some short comings on the subject of creditors "clawing back" tuition expenses paid by an insolvent parent;

Your penchant for making condescending comments to others is well noted, Litigator22. Perhaps you think such comments to be witty, but I'm not impressed.

 

[quincy]

The bankruptcy court decision is an interesting one, Litigator. Do you have any comparable Florida/11th Circuit case?

The money went directly to the college. Wouldn't the court have to order the college to return the money? And does that ever happen?

That has happened. And I think the college might be a better named party than your son.

Read the 1st Circuit Court of Appeals decision linked to by Litigator above.



(Litigator, your posts are far better when you skip the unwarranted insults and stick to the law)