Dividing the assets in a divorce case is a complicated process in and of itself. However, that divorce can be even further complicated when the bank sues the spouses, alleging that the divorce agreement was fraudulent.
Recently, in Jefferson County, in Holsombeck v. USAmeriBank f/k/a/ Aliant Bank, the court addressed whether property conveyed as part of the divorce decree was done to defraud bank. Mr. and Mrs. Holsombeck married in 1982. In 2011, their business executed six separate business loans secured by mortgages. The husband was the guarantor for these loans and their marital home served as the security for the loans.
In 2013, Mrs. Holsombeck sued for divorce. The divorce decree awarded her the $250,000 marital residence, with Mr. Holsombeck being responsible for paying the $18,000 mortgage after that. In 2014, Mr. Holsombeck and Holsombeck Builders defaulted on the notes it owed to the bank; the bank sued. The court held a trial on the fraudulent transfer claim, holding that the marital residence and $75,000 from Mr. and Mrs. Holsombeck’s joint bank account had been fraudulently transferred.
On appeal, the Court of Civil Appeals applied the Alabama Fraudulent Transfer Act (AFTA) to the transfer between the Holsombecks. At trial, Mr. and Mrs. Holsombeck testified that they had not engaged in any romantic relationship since 2011. However, a private investigator found that the husband was still living with the wife as of the date of the trial and that he continued to list the marital residence on his 2013 income tax return.
When applying the badges of fraud, the Court focused on three main factors. First, the Court looked at whether the transfer was to an “insider.” Because the house and money were transferred from husband to wife (and relatives are included as insiders), the court considered Mrs. Holsombeck an insider.
Second, the Court looks to whether there is evidence that the “debtor retained possession or control of the property transferred after the transfer.” Because Mr. Holsombeck continued to live in the house and list it as his address, there was evidence that he still maintained control of the property. Finally, the Court considered whether the transfer occurred shortly before or after a substantial debt was incurred.
The business was in financial trouble in 2010 and the divorce was entered in 2013, a relatively short period of time. The Court affirmed the trial court’s judgment.
The main issue here is that the Court will look to the badges of fraud under the AFTA in determining whether property from a divorce decree is fraudulently transferred. Because the property was transferred to an insider, the debtor retained control, and the short amount of time following the incursion of debt, the bank could enforce its rights as a creditor.
It is important to seek an experienced civil attorney who understands the realities of Alabama fraudulent transfer law. If you need a civil lawyer, contact INGRAM LAW LLC at 205-438-6666 for help with your case.