Moving money after you are sued: what makes a transfer a fraudulent conveyance.

Moving money after you are sued is not a crime by itself. It becomes a fraudulent conveyance — now called a voidable transaction in New York — when you transfer an asset with actual intent to hinder a creditor, or when you transfer it for less than reasonably equivalent value while your finances are already strained.

Is it illegal to move money after I have been sued?

Moving money after you are sued is not illegal in itself. New York law does not freeze your bank account the day a summons is served. The risk is different. A court can undo the transfer, take the asset back, and enter a money judgment against the person who received it.

That is the default, not a guarantee. A plaintiff can seek an order of attachment or an injunction while the case is pending, and one ground for attachment is disposing of property to frustrate a judgment. After judgment, a restraining notice freezes the account. Violating either order is contempt.

Absent such an order, the civil claim is the whole mechanism. It is not a criminal charge. It reverses what you did and reaches the recipient.

Law: CPLR 6201(3); CPLR 6301; CPLR 5222; CPLR 5251.

Does the old fraudulent conveyance law or the new one apply to my transfer?

The date of the transfer decides which statute governs. New York replaced its Uniform Fraudulent Conveyance Act with the Uniform Voidable Transactions Act, effective April 4, 2020. The new act governs transfers made and obligations incurred on or after that date. Transfers before that date are measured by the repealed provisions.

The change is substantive. The old law asked whether a transfer was made for “fair consideration,” which carried a good faith requirement on the receiving end. The new law asks only whether the debtor received “reasonably equivalent value.”

Fixing the transfer date is separate from remembering when you signed. For real property, the transfer is made when it is perfected against a good faith purchaser. That is the recording of the deed, not the closing.

Law: N.Y. Debtor and Creditor Law art. 10 (Uniform Voidable Transactions Act), effective April 4, 2020; DCL 275.

What makes a transfer a fraudulent conveyance under DCL 273(a)(1)?

A transfer is voidable under DCL 273(a)(1) when the debtor made it with actual intent to hinder, delay, or defraud a creditor. Actual intent means you meant to put the asset out of a creditor’s reach. No admission is required. Courts infer intent from the surrounding facts, which they call badges of fraud.

New York codified eleven of them. The statute calls them factors, not badges, and factors are not elements. No single one decides the case.

1. Transfer to an insider. A relative, an affiliate, an officer, a director, or a person in control.
2. Retained possession or control. You signed it over but still live in it, drive it, or run it.
3. Disclosure or concealment of the transfer.
4. Suit or threatened suit before the transfer.
5. Transfer of substantially all assets.
6. The debtor absconded.
7. Removed or concealed assets.
8. Consideration received. Whether what you got back was reasonably equivalent.
9. Insolvency. Whether you were insolvent, or became insolvent shortly after.
10. Timing. Shortly before or after a substantial debt was incurred.
11. Essential business assets passed to a lienor that then passes them to an insider.

Read factor four again. Being a defendant when you transfer is written into the statute as a circumstance from which intent may be inferred.

A factor is not a finding. The creditor must prove an actual-intent claim by a preponderance of the evidence. The claim sounds in fraud, so CPLR 3016(b) requires the circumstances to be stated in detail. Courts apply that with flexibility, because intent is rarely shown directly, and a creditor may plead badges of fraud instead. What fails is a complaint that recites badges and identifies no transfer.

Law: DCL 273(a)(1); DCL 273(b)(1)-(11); DCL 273(c); DCL 270; CPLR 3016(b); Wall St. Assocs. v. Brodsky, 257 A.D.2d 526 (1st Dep’t 1999) (pleader may rely on badges of fraud).

Can a transfer be voided if I never intended to defraud anyone?

Yes. Constructive claims under DCL 273(a)(2) and DCL 274(a) do not require intent to defraud. They turn on two questions: whether you received reasonably equivalent value for what you gave away, and what your financial condition was at the time. A transfer made for nothing satisfies the first element automatically.

Insolvency has its own definition. Under DCL 271, you are insolvent if, at a fair valuation, your debts exceed your assets. A debtor generally not paying debts as they become due is presumed insolvent, and the burden of disproving it shifts to you. That presumption does not apply where the nonpayment results from a bona fide dispute. If you withheld payment because you contested the bill, document that.

Notice the reach column. An actual-intent claim reaches creditors whose claims did not yet exist when you transferred. Transferring before you were sued is therefore no defense to that claim. It is a defense under DCL 274.

Law: DCL 273(a)(2)(i)-(ii); DCL 274(a)-(c); DCL 271(a)-(b); DCL 278(a)-(c).

Does paying a real debt count as a fraudulent conveyance?

Paying an actual debt you owe is generally not a voidable transfer. DCL 272 defines value to include an antecedent debt that is secured or satisfied. So repaying a real bank loan on its existing terms gives you value in exchange, and a constructive claim fails on its first element. Preferring one creditor is not, by itself, fraud.

That protection has a limit. Value defeats the constructive claims. It does not answer an actual-intent claim, where the payment is protected by the recipient’s own good faith under DCL 277(a).

One carve-out is the one defendants walk into. If the antecedent debt is owed to an insider, DCL 274(b) applies. A payment to yourself on a shareholder loan, or to your spouse on a note the company signed, is voidable if the company was insolvent and the insider had reasonable cause to believe it. That claim carries the statute’s shortest clock.

The insider payment has its own defenses in DCL 277(f). It is protected to the extent the insider gave new value after the transfer, except to the extent it was secured by a valid lien. It is also protected if it was in the ordinary course of business for both the debtor and the insider, or made in a good faith effort to rehabilitate the debtor. A salary paid on the same schedule for years reads differently from a distribution taken the month after the summons arrived.

Law: DCL 272(a); DCL 274(b); DCL 277(a); DCL 277(f); DCL 278(c).

Which transfers after a lawsuit actually create exposure?

Transfers that create real exposure share one feature. The debtor gave up an asset and got nothing comparable back, at a time when a claim already existed or was plainly coming. Insider transfers are the sharpest version, and an insider transfer is the first factor the statute lists.

• Retitling the house to a spouse. A deed signed over for a dollar while a claim is pending. No reasonably equivalent value, an insider, and often retained possession.
• Distributions to owners out of pattern. A draw with no precedent in prior years, taken after the claim arose.
• Repaying your own loan to the company. A real debt, but an insider debt. Squarely inside DCL 274(b).
• Moving operations to a new entity. Customer list, equipment, and goodwill to a new LLC with the same owners, debts left behind.
• Gifts and forgiven notes. Cancelling a note owed to you is a transfer, the same as writing a check.

What can a creditor do to the person who received the money?

The recipient becomes a defendant. Under DCL 277, a creditor who prevails may take a money judgment against the first transferee, or against the person for whose benefit the transfer was made, for the value of the asset at the time of the transfer or the amount necessary to satisfy the creditor’s claim, whichever is less.

That judgment is not automatic. It runs only to the extent the transfer is voidable, is subject to the defenses in DCL 277, and is adjusted as the equities require.

DCL 276 sets out what else a creditor may seek, some of it before any judgment on the underlying claim. None of it issues on request.

• Avoidance. The transfer undone, only to the extent necessary to satisfy the creditor’s claim.
• Attachment. Against the asset or other property of the transferee, and only on a ground available under CPLR 6201.
• Injunction. An order restraining further disposition, subject to principles of equity.
• Receiver. A receiver to take charge of the asset, on the same terms.
• Levy. Execution on the asset or its proceeds, only after judgment against you and only if the court so orders.

There is a fee consequence. Under DCL 276-a, a judgment creditor who was awarded attorney’s fees on the underlying claim, or waived fees available under the statute it arose under, and who then wins a judgment avoiding a transfer, is awarded reasonable fees for the avoidance action itself.

A voidable transfer claim does not stay between you and the plaintiff. It pulls your spouse, your sibling, or your holding company into the caption as a named defendant with their own exposure.

Law: DCL 276(a)-(b); DCL 277(b)-(d); DCL 276-a; CPLR 6201.

What defenses protect a transfer that has already happened?

DCL 277 supplies the defenses, and the party asserting them carries the burden of proving them by a preponderance of the evidence. The strongest sits in subsection (a). A transfer is not voidable for actual intent against a person who took in good faith and for a reasonably equivalent value given to the debtor.

A transferee who gave value but less than reasonably equivalent value is not left with nothing, provided that transferee took in good faith. To the extent of the value given, DCL 277(d) allows a lien on or a right to retain an interest in the asset, enforcement of the obligation incurred, or a reduction in the judgment. Without good faith, there is no credit.

Two categories are excluded outright. A transfer resulting from termination of a lease on the debtor’s default, or from enforcement of a security interest in compliance with Article 9 of the Uniform Commercial Code, is not voidable.

One defense comes before the others. If what you transferred was not an asset as DCL 270 defines it, there is nothing to avoid. Property encumbered to its full value by a valid lien, exempt property, and a tenancy by the entirety a creditor of one spouse cannot reach sit outside the statute.

Documentation is what makes these defenses work. Good faith and reasonably equivalent value are proved with appraisals, bank records, the executed bill of sale, and the closing statement. Not with recollection.

Law: DCL 277(a), (d), (e), (g), (h); DCL 270.

What should you do about a transfer you have already made?

Start with dates, not arguments. Two dates decide most of the analysis: the date the creditor’s claim arose, and the date each transfer was made. Write both down before you discuss intent with anyone. If a transfer landed after the claim arose, assume it will be examined.

1. Find the transfer document and date it under DCL 275. The recorded deed, the wire confirmation, the bill of sale, or the check image. For real property the date is the recording date.
2. Answer one question about each transfer: what came back? If the answer is money, a released debt, or a satisfied note, find the document that proves it. If nothing, the constructive claims are halfway home.
3. Determine whether the recipient is an insider. Check DCL 270. Relatives, affiliates, officers, directors, general partners, and persons in control qualify. An insider changes which claims apply and which clock runs.
4. Reconstruct your balance sheet as of each transfer date. Insolvency is measured at a fair valuation on the day of the transfer, not today.
5. Stop making new transfers until this is mapped. Every additional transfer after the claim arose adds a factor and adds a defendant.

One more point on ordinary operations. Continuing to pay rent, payroll, suppliers, and the bank on existing terms is not the exposure. Stopping those payments and redirecting the money to people close to you is. A pattern that did not change is the most useful fact you can preserve.