Publication

When Can a Dissipation of Marital Assets Also Be a Fraudulent Conveyance?

by: Ronald L. Ogens, Principal and Practice Group Leader Where the court finds that a party has intentionally dissipated marital property for other than family purposes and in order to prevent the asset from being part of the marital estate for purposes of making an equitable award, the court may treat the property as being existing, although it may have already been squandered or conveyed to a third party.  This would apply even when the dissipated property cannot be recovered because it is in the hands of a purchaser in good faith who took without notice and for value. Megan and Tim, married and living in a house owned by Megan’s father, entered into a contract whereby the father would convey the home to the couple in return for their assuming the remaining mortgage on the home and delivering a joint note to the father for $30,000.00, the assumed equity in the home at the time.  Because of the concern that the conveyance would trigger a due on sale clause in the mortgage, the home was titled in Megan’s name alone, since a transfer of the property secured by the asset to a daughter would not, under Federal law, trigger the mortgage’s due on sale clause.  Father was to be allowed to live rent free with the parties at the home or any subsequent home.  Their marital relationship having deteriorated, Megan asked for a divorce.  While title to the house was nominally in Megan’s name, the facts support that Megan was holding the property for both she and Tim, but in any event the house on conveyance to Megan in consideration of Tim and Megan’s assumption of the mortgage and execution of the note to her father, became marital property.  Megan, allegedly for the purpose of ensuring her father’s right to stay in the house until his death, conveyed the home to a trust without consideration, and upon the father’s death, the property would become Megan’s alone.  In the divorce action, Tim secured a monetary award, but Megan had little or no assets with which to satisfy the award.  Tim sued under the Maryland Fraudulent Conveyance Act, Commercial Law Article, subtitle 15-201 et seq., which can be used to set aside the conveyance OR to permit levy on or garnishment of the property conveyed as if the conveyance had not been made.  In this instance, the court found in the underlying divorce action that there had been a dissipation of assets, which is a fraud on marital rights.  In subsequent proceedings, the Maryland Court of Special Appeals affirmed the trial court’s grant of summary judgment finding that a fraudulent conveyance had occurred when the dissipation had taken place.  Holding that a fraudulent conveyance can be proved by showing that a debtor conveyed property with an actual intent to defraud his or current or future creditors.  Moreover, unlike the burden in other cases of fraud (clear and convincing evidence), the burden of showing dissipation as a fraud on marital rights requires only a showing by a preponderance of the evidence.  Jeffcoat v. Jeffcoat, 102 Md. App. 301 (1994).  The remedy granted in this case would not be available if the conveyance of the property had been to a third party, for value and without notice.  See Meese et al v. Meese, 69 A.3d (2013), decided June 26, 2013). No. 827, September Term, 2011, decided… Ronald L. Ogens is a Principal attorney in Offit Kurman’s Washington office and Chairman of the Family Law Practice Group. Mr. Ogens’ practice as family law attorney and divorce lawyer is focused on the negotiation, settlement, and litigation of family law matters in Maryland and the District of Columbia. He can be reached at 240.507.1701 or rogens@offitkurman.com.