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fraudbad.ges
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1992-01-24
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BADGES OF FRAUD
The following is a quote from the Utah District Court case of U.S. v.
Parks of 4/26/91 cited in United States Tax Cases as 91-1 USTC
88,056:
"In interpreting and applying the law of fraudulent conveyances, the
Utah Supreme Court in Dahnken, Inc. of Salt Lake City v. Wilmarth,
726 P.2d 420,423 (1986)...stated that although actual fraudulent
intent must be shown to hold a conveyance fraudulent pursuant to
Sec. 25-1-7, its existence may be inferred from the presence of
certain indicia of fraud or 'badges of fraud'."
"The courts have considered the following to be among the badges of
fraud:"
1. insolvency of the grantor;
2. inadequate consideration;
3. the transfer of all of the debtor's property;
4. the transfer was made in anticipation of a suit or liabilities;
5. a close relationship between the transferor and transferee;
6. the conveyance was not made an ordinary course of business;
7. failure to record the conveyance;
8. the retention of possession by the transferor;
9. the reservation of an interest or benefit by the grantor;
10. the security given by the transferor is in excess of the debt;
11. secrecy or haste in the transfer;
12. the state taxes or real property taxes are paid by transferor.
The court went on to say that the "badges of fraud" demonstrate that
the conveyance at issue was a fraudulent conveyance under Utah law.
I would feel confident that most other states use similar criteria as
"badges of fraud" to support the inference of a fraudulent
conveyance.
So if you're going to transfer property to protect it from theft,
keep these badges in mind so you don't fall into this "inference"
trap.