Fraudlent Transfers And Marital Property Settlements

In the case of Mejia v. Reed, 2002 DJDAR 3455 the Court of Appeal for the Sixth Appellate District concluded that a Marital Property Settlement Agreement and judgment of dissolution are subject to creditor claims under the Uniform Fraudulent Transfer Act. In reaching this conclusion the court disagreed with the prior decision from the Fourth District in Gagan v. Gouyd (1999) 73 CA4th 835. Mejia first filed and action against Reed to establish paternity of their child. Less than a month after Reed was ordered to pay child support his wife petitioned for dissolution of their marriage. The following day a marital settlement agreement was signed. The agreement awarded husband his medical practice and wife the former family residence. Sometime later husband abandoned his medical practice leaving him with only his car and pension plan as assets. Reed moved in with his mother in San Francisco.

Mejia sued Reed and his ex wife alleging that the property settlement agreement awarding the residence to wife was a fraudulent transfer that was intended to defraud, hinder and delay her in collection of future child support.

Reed sought judgment on the ground that there was no evidence of an intent to defraud. The trial court granted that motion.

On appeal, the court addressed the complex issue of competing statutory schemes. One statutory scheme related to dissolution of marriage protects the assets awarded to a spouse in a dissolution from debts of the other spouse and the other scheme is the Uniform Fraudulent Transfer Act intended to protect creditors from improper action by debtors seeking to avoid liability. Neither code references the application of the other. In construing the statutes the Court of Appeal decided that the policy of deterring misconduct outweighs the policy of assuring finality of a judgment.