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December 2019 Archives

Uniform Fraudulent Transfer Act May Apply to Premarital Agreement

In Sturm v. Moyer, 32 Cal. App. 5th 299 (February 15, 2019), the California Court of Appeal ("COA") addressed a question of first impression and held that, assuming fraudulent intent, the Uniform Voidable Transactions Act, formerly known as the Uniform Fraudulent Transfer Act ("UFTA"), can apply to a premarital agreement in which the prospective spouses agree that upon marriage, each spouse's earnings, income and other property acquired during marriage will be that spouse's separate property. In this case, the plaintiff had obtained a non-dischargeability judgment against the husband debtor in bankruptcy. During a judgment debtor examination, plaintiff discovered that the defendants had entered into a premarital settlement agreement after the judgment was entered providing that each party's earnings and income, and any property acquired during the marriage by either spouse, would be that spouse's separate property. Typically, pursuant to Fam. Code § 910, the community estate would be liable for debt incurred by either spouse prior to marriage (unless the spouses comply with the provisions of Fam. Code § 911). The plaintiff filed an action under UFTA to set aside the alleged transfer of the husband debtor's community property interest in his wife's earnings and income pursuant to the premarital agreement. The COA looked at (1) the statutory language of the UFTA (which suggests that a premarital agreement effects a transfer given the broad definition of transfer), (2) the legislative history of the UFTA and the relevant portions of the Family Code, and (3) public policy considerations (protecting the rights of creditors from fraudulent transfers), to determine that the UFTA applies to premarital agreements. 

No Part of Creditor's Claim Can Be Disputed In Order to File an Involuntary Bankruptcy Petition

In State of Montana Dept. of Revenue v. Blixseth, No. 18-15064, the Ninth Circuit Court of Appeals held that a creditor only has standing to file an involuntary petition against a debtor if the entirety of its debt is not subject to a bona fide dispute. If the amount of the claim is even partially disputed, the creditor cannot be a petitioning creditor. Pursuant to Section 303(b)(1), a petitioning creditor's claim must not be contingent or the subject of a bona fide dispute as to liability or amount. In Blixseth, the debtor's 2004 taxes were under audit. The debtor conceded that a deduction he took was improper but there were other adjustments and deductions that were unresolved and were in the process of being tried in front of the Montana State Tax Appeals Board. While the complaint was pending, plaintiff and other creditors filed an involuntary petition against the debtor. Plaintiff's claim in the involuntary petition consisted only of the taxes owed, which flowed from the deduction issue that was resolved. Plaintiff contended, however, that it had total claims against the debtor of much more than what was asserted and that most of the additional claims were disputed. The bankruptcy court acknowledged that a taxing authority "has but one claim for each calendar year of a taxpayer's life" and that plaintiff failed to show that it was allowed to create separate claims. The bankruptcy court held that since some of the debtor's liability to the plaintiff for the 2004 tax year was disputed, plaintiff's claim was subject to a bona fide dispute and plaintiff did not have standing to be a petitioning creditor. The district court agreed and the Ninth Circuit affirmed.

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