Your ability to transfer assets for asset protection purposes depends to a great extent on whether or not you are “insolvent” at the time of a transfer. Insolvency is generally defined in terms of your ability to pay your debts as they become due.
The Uniform Voidable Transactions Act (“UVTA”) – – a uniform law which will likely be followed by many states – – has two important provisions dealing with insolvency.
Section 2(b) of the UVTA states that a debtor that is generally not paying debts as they become due other than as a result of a bona fide dispute, is presumed to be insolvent. Excluding a bona fide dispute from the insolvency calculation is helpful. In the event that you are refusing to pay a creditor for a good reason, you should not be deemed “insolvent”.
The UVTA, however, places a burden on the debtor to essentially prove solvency at the time of a transfer. In other words, if you are moving some assets for asset protection purposes, you must be able to show that you are solvent at the time of the transfer.
This is another reminder that the best time to transfer assets for better protection is when you are clearly solvent and before you have any significant creditor issues.