My debtor husband paying back my loan

[LdiJ]

Let's not lose sight of the original post:



Judgment was entered against hubby in 2019.
Wife loaned the money to hubby in 2020.
Now wife wants to know if the act of hubby paying the loan she gave ahead of the judgment will create a problem.

What hubby used the money for is irrelevant, as is where the funds came from. The only thing to think about here is the money that hubby eventually has available to pay back his creditor(s).

If hubby has $30k, that should go to pay the earlier judgment before it goes to paying back the loan from the wife. I believe that the hypothetical future payment certainly could create a hypothetical problem for the hubby wrt a fraudulent transfer.

Why do you believe that the law requires the bolded? That question is sincere, not snark.

 

[Zigner]

Why do you believe that the law requires the bolded? That question is sincere, not snark.

Because the "loan" was entered in to after the judgment.

 

[LdiJ]

Because the "loan" was entered in to after the judgment.

I think that you perhaps are trying to apply bankruptcy rules to a judgment situation.

 

[delmar]

This is whole story and the whole law that is applicable:

I am married to my husband for the last 8 years. My husband lost a case in 2019 and should pay about $50,000 to the creditor. However, after trying for a year, the creditor stopped pursuing the collection efforts. I am not a party in that case. In 2020, my husband urgently needed money and I loaned him $30,000 from my personal account (in which I have more than 30K, all of which I earned on my own prior to my marriage, and none of it is given by anyone else), and I gave that as interest free loan (payable within the next 2 years). I wrote a check from my bank account for 30K and my husband deposited in his personal account and used that for his father’s treatment, and we have bank documents and agreement for this loan. I know that my husband has a case but did now know (that he lost it) until few months back, that is, I am aware of that only after I gave him the 30K loan (my husband did not tell me as he does to want to hurt me mentally). Even if the creditor goes after my father in law, the creditor will not get anything because my father in law has no property and he is bed ridden.



Now, if my husband pays me back that $30,000, then will it create any issue to me or to my husband, form the creditor, specifically in terms of fraudulent transfer act of Florida?



The relevant laws are as follows:



(1). The relevant law on fraudulent transfers:



726.106 (2) http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0700-0799/0726/0726.html "A transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent." [wife is treated as insider as per the above law]



(2). 726.201 Fraudulent loans void.— “ When any loan of goods and chattels shall be pretended to have been made to any person with whom or those claiming under her or him, possession shall have remained for the space of 2 years without demand and pursued by due process of law on the part of the pretended lender, or where any reservation or limitation shall be pretended to have been made of a use or property by way of condition, reversion, remainder or otherwise in goods and chattels, and the possession thereof shall have remained in another as aforesaid, the same shall be taken, as to the creditors and purchasers of the persons aforesaid so remaining in possession, to be fraudulent within this chapter, and the absolute property shall be with the possession, unless such loan, reservation or limitation of use or property were declared by will or deed in writing proved and recorded.”[emphasis added]



(3). Jacksonville Bulls v. Blatt, 535 So. 2d, 626 (Fla. 3rd Dist. Ct. App. 1988), https://www.courtlistener.com/opinion/1777167/jacksonville-bulls-football-ltd-v-blatt/? :
“if a judgment debtor disposes of assets for adequate cash, the transaction will not be considered fraudulent in the absence of a showing that the debtor intended to give the funds received to other than existing creditors. Otherwise stated, it is not fraudulent to give the funds to some but not all existing creditors, even though the effect might be to injure or prejudice an existing creditor who was not chosen to receive the debtor's largesse. These so-called preferential transfers are not deemed fraudulent even though their natural effect is to hinder or delay the non-preferred creditors. Jackson v. Citizens' Bank & Trust Co., 53 Fla. 265, 44 So. 516; Godard v. Crenshaw, 136 Fla. 78, 186 So. 822; Jones v. Wear, 111 Fla. 69, 149 So. 345 (1933); Vickers v. Glenn, 102 Fla. 535, 136 So. 326 (1931); Baldwin v. La Fayette Land Co., 62 Fla. 129, 56 So. 943 (1912). A creditor may properly accept a preference even if the creditor knows that the debtor is making a "calculatedly preferential transfer" for the purpose of disfavoring other creditors. Baldwin v. La Fayette Land Co., 62 Fla. 129, 56 So. 943; Miles v. Katz, 405 So. 2d 750 (Fla. 4th DCA 1981); Mission Bay Campland, Inc. v. Sumner Financial Corp., 731 F.2d 768 (11th Cir.1984).”

(4). Miles v. Katz, 405 So. 2d 750, 751 (Fla. 4th Dist.Ct. App.1981):
“A debtor's preferential transfer of property to a creditor cannot be declared fraudulent as to other creditors, although the debtor in making it, intended to defeat their claims, and the preferred creditor had knowledge of such intention if the preferred creditor did not actually participate in the debtor's fraudulent purpose. See, Vickers v. Glenn, 102 Fla. 535, 136 So. 326 (1931). If the only purpose of the creditor is to secure his debt, and the property is not worth materially more than the debt, the transaction is not fraudulent. Nelson v. Cravero Constructors, Inc., 117 So. 2d 764 (Fla. 3rd DCA 1960). And this is so, although the preferred creditor knows that the debtor is insolvent, that the transfer is of all of the debtor's property, that there are other creditors, that the debtor is actuated solely by the desire to defraud his own creditors, and the effect of the debtor's action will be to defeat them. The preferred creditor, however, must act in good faith, but if he takes the conveyance for the purpose of aiding in the fraud, it is void. See, Nelson, supra.”

 

[Zigner]

Why did you post that again???

 

[Taxing Matters]

Now, if my husband pays me back that $30,000, then will it create any issue to me or to my husband, form the creditor, specifically in terms of fraudulent transfer act of Florida?

That will depend on the extent to which the court can be convinced that you have a bona fide loan agreement with your husband. A good start for that is a solid, well written loan agreement. I don't know if you have a written loan agreement for this and in any event I haven't read it so I cannot say how strong it might be. Other factors that would tend to show whether the loan was bona fide would also be considered by the court, like whether the loan charges market interest, the extent to which you take steps to enforce the loan agreement if he defaults, whether the loan is secured, whether other creditors would have given your husband that kind of loan given his financial condition, etc. If the loan agreement holds up, then his repayment of it would not be a fraudulent conveyance. But if the court thinks the loan agreement a sham, then the repayment might well be declared a fraudulent conveyance.

 

[Taxing Matters]

Because the "loan" was entered in to after the judgment.

If there was an attachment of the debtor's property by two or more creditors then the date each perfected its interest in that property would generally determine priority. But if the debtor is making voluntary payments, he or she may decide whom to pay among his/her various creditors without regard to lien priority. The law does not impose a requirement that debtor's pay debts in any particular order. Of course, should the debtor file bankruptcy shortly thereafter the repayment of some creditors may be treated as preferential payment that the trustee can recover from the creditor.

 

[Zigner]

Other factors that would tend to show whether the loan was bona fide would also be considered by the court, like whether the loan charges market interest...

Per the OP, the loan was "interest free".

 

[Taxing Matters]

Per the OP, the loan was "interest free".

That wouldn't be helpful in trying to prove that the loan was bona fide.

 

[delmar]

Two witnesses also signed. I think no interest is needed between wife and husband which, otherwise, should be reported in the tax.

 

[quincy]

Two witnesses also signed. I think no interest is needed between wife and husband which, otherwise, should be reported in the tax.

You might want to have the loan agreement between you and your husband reviewed by an attorney in your area.

Where will your husband come up with $30,000 to pay you back?

I don’t know how the judgment-creditor will learn of this personal loan or the payments your husband made for his dad’s medical treatments. IF he learns of a large sum of money having been deposited in your husband’s personal account, however, it will raise questions about the source. You might want to arm yourself now with evidence (documents) so you can provide the answers.

 

[Taxing Matters]

Two witnesses also signed. I think no interest is needed between wife and husband which, otherwise, should be reported in the tax.

Having him pay interest at a market rate, however, helps establish that this was a real business decision by you and thus a bona fide loan. You might still succeed in getting a court to say it was a bona fide loan even with the zero interest, but it makes it harder.

By the way, the Congress got wise decades ago to the tax games that people play with loans between family members, including between spouses. Without getting into all the details, because there is a lot of detail to it, the simplified version is when you make a loan below the Applicable Federal Rate (AFR), which is a rate that the IRS publishes every month, the tax law imputes interest on the transaction anyway at the AFR. The effect of this is that the forgone interest is still treated as interest you received and is subject to income tax, and then since you didn't actually get the interest, you are treated as having made a gift of that foregone interest to your husband. If the total amount of below market loans outstanding is less than $10,000 these rules don't apply. And when the total loans outstanding are less than $100,000, there are special rules that can limit how much interest income you have to take into account.

 

[not2cleverRed]

I am married to my husband for the last 8 years. My husband lost a case in 2019 and should pay about $50,000 to the creditor. However, after trying for a year, the creditor stopped pursuing the collection efforts. I am not a party in that case. In 2020, my husband urgently needed money and I loaned him $30,000 from my personal account (in which I have more than 30K, all of which I earned on my own prior to my marriage, and none of it is given by anyone else), and I gave that as interest free loan (payable within the next 2 years). I wrote a check from my bank account for 30K and my husband deposited in his personal account and used that for his father’s treatment, and we have bank documents and agreement for this loan. I know that my husband has a case but did now know (that he lost it) until few months back, that is, I am aware of that only after I gave him the 30K loan (my husband did not tell me as he does to want to hurt me mentally). Even if the creditor goes after my father in law, the creditor will not get anything because my father in law has no property and he is bed ridden.

You need marriage counselling.

 

[quincy]

Delmar, how is your husband going to pay you back? Does he have a job?

 

[delmar]

Finally, we decided that my husband will not pay me back that loan which may subject to attack form the creditor, and I do not want to involve in that case. Instead, he will spend that 30K for family expenses and maintenance. Greatly appreciate the feedback provided in this forum.

I should not explain from where he will get 30K, I suspect the creditor may also be reading this forum.