divorce
This is about something that I see within the trenches of litigation a number of times a 12 months, but rarely makes it into an appellate opinion, so most individuals do not know this form of thing goes on within the courtroom. Here this problem and its result results in an appeal opinion, albeit within the case of unpublished opinions Gilbert vs. Gilbert, 2024 WL 1472047 (Ky.App., unpublished, April 5, 2024). So what exactly am I talking about? It’s concerning the realized negative effects of favorable asset protection.
This case involves a neurosurgeon from Kentucky named John Gilbert. who owned a house before his marriage. In 2013, John married his wife Morgan. Shortly thereafter, he gifted the title to Morgan for “asset protection” with the understanding that she would give it back within the event of a separation “because he was in a high-risk specialty and neurosurgeons sometimes get sued beyond the limits of malpractice and lose everything.” “. “
Apparently no creditor ever attempted to take John’s share of the home. But in 2018, John and Morgan’s marriage began to falter and Morgan filed for divorce. The divorce court rejected John’s gift of the home to Morgan and as a substitute awarded the home to John as his premarital property. Morgan appealed to the Kentucky Court of Appeals and that brings us to the opinion stated.
On appeal, the choice was overturned and Morgan was allowed to retain title to the home on the grounds that John had made a present which he believed ought to be binding. As for the agreement between John and Morgan that she would return the home to John within the event of a divorce, the Court of Appeal ruled that the agreement was unenforceable. Citing an earlier decision by the Kentucky Court of Appeals, the court wrote: “[a] A person who transfers property to escape the reach of creditors is generally at the mercy of the grantee as to whether he will ever recover his property; The “clean hands” maxim prevents either party to the transfer from obtaining an affirmative treatment to implement the agreement.”
Interestingly, John tried to say that his gift to Morgan was a fraudulent transfer that ought to have resulted within the avoidance of the gift. The glaring problem here is that John didn’t have a creditor on the time of the transfer, so it might have been a fraudulent transfer. So this argument failed and Morgan was allowed to maintain the home.
ANALYSIS
Before we get to the larger issue, it ought to be noted that John’s fraudulent transfer claim failed for 2 additional reasons not identified by the Court of Appeal. First, only a creditor can seek compensation for a fraudulent transfer, not a transferee. Second, even when a fraudulent transfer is about aside in favor of a creditor, the transaction between the transferor and the transferee stays intact. The latter is a really technical issue that may hopefully be addressed in a future article, but this general rule is all you must know for now.
Now to the larger problem: This happens on a regular basis. A one who has concerns about creditors transfers property into their spouse’s name in order that the property is not any longer available to creditors. No creditor appears, however the couple divorces. Then the spouse who made the transfer goes to court and testifies that the transfer was just an enormous deception in case she or he ever gets sued. Surprisingly, the trial court on this case actually accepted this representation – it’s the primary time I’ve ever heard this argument work at any judicial level. Most judges will simply dismiss the transferring spouse’s argument, often with a smile on the judge’s face on the absurdity of all of it.
Anecdotally, this problem at all times seems to occur with doctors. While this must definitely occur to others, in every certainly one of these situations that I even have personally seen over the course of my long profession (well over a dozen), there has at all times been a physician involved. The emergence of this phenomenon seems to start with the statement: “A little knowledge is a dangerous thing” and ends with the doctor carrying out a transaction with the false assumption that a court will respect the transaction out of consideration for creditors, however the transaction won’t respected for some other purposes.
There’s also a certain cheapness and do-it-yourself aspect to the entire thing. In so a lot of these opinions we review, someone may need had a greater end result in the event that they had planned properly, but for some reason that person selected to chop corners as a substitute. The thing about cutting is that it is simple to get cut off on the corner, and in truth John was thrown out of the home on this opinion.
Because matters have legal consequences, it is sort of at all times higher to do nothing in any respect than to attempt to do it cheaply. The idea of gifting property to a spouse to avoid creditors within the hope and prayer that the property will someway come back in a divorce is such planning. When you think about that getting a divorce might be way more likely than a claimant receiving a judgment in excess of insurance coverage, it’s difficult to view such planning as anything apart from a extremely bad bet.
