A recent Appellate Division decision should serve as a warning to anyone thinking about transferring assets and rendering themselves judgment proof before entering into a business deal. If the deal goes bad, the transfer might be deemed fraudulent and creditors might be able to look to the fraudulently transferred assets to satisfy their judgments.
In Anastasi v. Barmbatsis, defendants, husband and wife, held all of the shares in a single-purpose entity that owned and operated a Stewart's Root Beer in Franklin Park, New Jersey. Shortly before procuring a loan to open a new Stewart's location with a partner, husband transferred his interest in the entity to wife, along with nearly all of his interest in another entity that the two owned. Husband then entered into a deal with plaintiff — verbal, but "apparently sealed with a handshake" — to borrow $50,000 to use to open the new restaurant. Defendants used this money, along with other funds, to open the restaurant.
Husband agreed to repay the loan in five to seven months. This was subsequently extended but husband failed to repay the loan even with the extension. Plaintiff sued and obtained a default judgment against husband for $50,000. In post-judgment discovery, plaintiff learned about the pre-loan transfers from husband to wife. Thereafter, he sued both husband and wife alleging, among other things, that the transfers violated New Jersey's Uniform Fraudulent Transfers Act (the "UFTA"). The trial court ruled in plaintiff's favor. It held that wife was not personally responsible for paying back the loan, but plaintiff could satisfy his judgment with the interests in the two entities that husband had transferred to wife.