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13.3.2 Exempt Property Purchased with Non-Exempt Funds or Proceeds of Wrongdoing

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13.3.2 Exempt Property Purchased with Non-Exempt Funds or Proceeds of Wrongdoing

Even though exemption laws are entitled to a liberal construction, exemptions may not be construed to aid wrongdoing.53 Thus, property purchased or improved with the proceeds of wrongdoing is generally non-exempt, and some courts enable a creditor to execute on the property by recognizing an equitable lien in favor of the creditor, at least up to the amount of the traceable funds.54 For example, courts hold a home non-exempt to the extent it was purchased or a mortgage on it paid down with the proceeds of a Ponzi scheme, embezzlement, or other fraud.55 The exemption may be denied even as to a co-owner who is innocent of the wrongdoing by which the proceeds were obtained.56 The creditor has the burden of proving that the proceeds were so obtained and that they can be traced.57

On the other hand, when exempt property was purchased with non-exempt but legitimately obtained funds, the usual rule is that the property is exempt unless the transaction qualifies as a fraudulent transfer under state law.58 However, conversion of property from one exempt form to another is almost never a fraudulent transfer.59 In addition, Florida’s fraudulent transfer statute does not override the homestead exemption that is found in the state constitution,60 and the Texas fraudulent transfer statute applies only to personal property.61

In jurisdictions where the homestead exemption is found in the state constitution, homesteads may be treated more favorably than other property in analyzing possibly fraudulent transfers.62

Some exemption statutes that deal with specific types of assets, such as annuities, provide that they do not protect that asset to the extent that it was created by a transfer of other property in fraud of creditors.63 Courts may also apply estoppel or similar theories to deny an exemption if the debtor obtained the extension of credit by misrepresenting that the property in question was not exempt.64

In some circumstances, federal bankruptcy law may override state law that would protect exempt property that was purchased with non-exempt assets. Three provisions added to the Bankruptcy Code in 2005 limit debtors from taking full advantage of state exemptions: (1) section 522(o), which deals with prepetition conversion of non-exempt property with fraudulent intent; (2) section 522(p), which covers acquisitions of homestead property within 1215 days of the bankruptcy filing; and (3) section 522(q), which relates to the commission of certain bad acts by the debtor.65

Footnotes

  • 53 In re Brown, 427 B.R. 715 (D. Minn. 2010) (exemptions not “a safe harbor for ill-gotten gains”; here, traceable proceeds of fraud used to purchase homestead and IRA); In re Pickard, 2012 WL 4919791 (Bankr. N.D. Iowa Oct. 15, 2012) (debtors sold old home and purchased new without paying off mortgage on old home; allowing bank an equitable lien on new homestead); Coppler & Mannick v. Wakeland, 117 P.3d 914 (N.M. 2005) (owner’s tortious conduct—tearing out fixtures and vandalizing home when faced with imminent foreclosure—constituted “extraordinary circumstances” sufficient to warrant equitable lien on homestead). But see Shah v. Baloch, 418 P.3d 902 (Ariz. Ct. App. 2017) (Employee Retirement Income Security Act’s (ERISA) anti-alienation clause protects retirement fund even if fraudulent transfers were made; courts do not have authority to make equitable exception to ERISA).

  • 54 Janvey v. Alguire, 767 F.3d 430 (11th Cir. 2014) (Tex. law) (denying exemption for IRA funded with proceeds of Ponzi scheme; “net winners” had no right to possess the funds); In re Bifani, 580 Fed. Appx. 740 (11th Cir. 2014) (Fla. law) (allowing equitable lien on homestead purchased with proceeds of sale of property obtained in fraudulent transfer; need not show criminal conduct if property is purchased or improved with traceable proceeds of fraud); In re Huie, 2007 WL 2317152 (Bankr. E.D. Tex. Aug. 8, 2007) (homestead purchased with fraudulently obtained funds non-exempt up to the amount of those funds); In re Hecker, 316 B.R. 375 (Bankr. S.D. Fla. 2004), aff’d, 264 Fed. Appx. 786 (11th Cir. 2008); In re Linsey, 296 B.R. 582 (Bankr. D. Mass. 2003) (lien on homestead for amount of traceable stolen funds spent on improvements); Havoco of Am., Ltd. v. Hill, 790 So. 2d 1018 (Fla. 2001) (expressing willingness to impose equitable lien when proceeds of fraud are invested in homestead, but not otherwise); Hirchert Family Tr. v. Hirchert, 65 So. 3d 548 (Fla. Dist. Ct. App. 2011) (breach of fiduciary duty sufficient to trigger fraud exception to Florida homestead); Randazzo v. Randazzo, 980 So. 2d 1210 (Fla. Dist. Ct. App. 2008) (ex-wife’s misconduct sufficiently egregious to support lien on homestead; after agreeing to make court-ordered payment out of sales proceeds of house, she filed bankruptcy, sold the house while divorce action was stayed, and invested the proceeds in Florida homestead); Randall v. Haddad, 10 N.E.3d 1099 (Mass. 2014) (no exemption for traceable proceeds of wrongdoing—here, misappropriation from a charity—deposited in retirement account); Lackey v. Lackey, 691 So. 2d 990 (Miss. 1997) (exemption for insurance proceeds would not protect beneficiaries of policy purchased with funds stolen by fiduciary); Casterline v. Roberts, 284 P.3d 743 (Wash. Ct. App. 2012) (equitable lien may be placed on home purchased with proceeds of fraud, here, a trustee’s misuse of trust property to benefit self). See also In re Pickard, 2012 WL 4919791 (Bankr. N.D. Iowa Oct. 15, 2012) (allowing equitable mortgage on new homestead purchased with proceeds of former homestead when debtors contrived to sell former homestead without paying off the mortgage); In re Keck, 363 B.R. 193 (Bankr. D. Kan. 2007) (allowing equitable lien on homestead when debtor’s large credit card cash advances could be traced to homestead); Flinn v. Doty, 214 So. 3d 683 (Fla. Dist. Ct. App. 2017) (allowing equitable lien on homestead where homeowner had paid off mortgage with proceeds of sale of property her father had deeded to her when he lacked mental capacity to do so; unjust enrichment is sufficient basis for equitable lien, even in absence of egregious conduct); Sell v. Sell, 949 So. 2d 1108 (Fla. Dist. Ct. App. 2007) (ex-husband’s conduct in evading court orders, for which he was jailed for contempt, sufficiently reprehensible to support equitable lien on homestead). Cf. In re Mazon, 368 B.R. 906 (Bankr. M.D. Fla. 2007) (debtors concealed and dissipated non-exempt property; trustee could surcharge exempt retirement accounts but not homestead, when dissipated property could not be traced to homestead). But see Bank of Nashville v. Chipman, 2011 WL 3433012 (Tenn. Ct. App. Aug. 5, 2011) (Tennessee exemption for retirement funds bars imposition of constructive trust on IRA even though proceeds of fraud contributed to account). But cf. In re Deerey, 371 B.R. 525 (Bankr. M.D. Fla. 2007) (purchase of homestead with illegally obtained funds not sufficient to support equitable lien; must be proceeds of fraud or egregious conduct, narrowly defined); ML Servicing Co., Inc. v. Coles, 334 P.3d 745 (Ariz. Ct. App. 2014) (life insurance proceeds exempt in hands of beneficiary, even though policy was purchased with funds misappropriated by now-deceased CEO from his corporation); Partridge v. Partridge, 790 So. 2d 1280 (Fla. Dist. Ct. App. 2001) (ex-husband’s failure to sell homestead to pay alimony not the sort of conduct that justifies foreclosure of equitable lien); Grygorwicz v. Trujillo, 203 P.3d 865 (N.M. 2009) (homestead exemption available in tort action, even if judgment is punitive; equitable lien available only if misconduct involves the homestead itself).

  • 55 Crawford v. Silette, 608 F.3d 275 (5th Cir. 2010); In re Chew, 496 F.3d 11 (1st Cir. 2007) (Mass. law) (exempt property, purchased in part with proceeds of fraud or breach of fiduciary duty, is non-exempt up to amount of traceable proceeds of wrongdoing); In re Fin. Federated Title & Tr., Inc., 347 F.3d 880 (11th Cir. 2003) (Fla. law) (home purchased with traceable proceeds of Ponzi scheme not exempt); In re Mamtek US, Inc., 588 B.R. 72 (W.D. Mo. 2018) (California provides for equitable lien on homestead in which proceeds of fraud are invested; here, allowing lien where proceeds were used to pay down mortgage); In re Brown, 427 B.R. 715 (D. Minn. 2010) (exemptions not “a safe harbor for ill-gotten gains”; here, traceable proceeds of fraud used to purchase homestead and IRA); C & M Inv. Grp., Ltd. v. Campbell, 2010 WL 1459735 (M.D. Fla. Apr. 12, 2010) (allegation that proceeds of fraud were given to wife, who used them to purchase homestead, sufficient to trigger fraud exception to Florida homestead); In re Gamble-Ledbetter, 419 B.R. 682 (Bankr. E.D. Tex. 2009) (allowing judicial lien on homestead for the amount of embezzled funds used to pay down mortgage); In re Beveridge, 416 B.R. 552 (Bankr. N.D. Tex. 2009) (constructive trust when down payment on homestead made with proceeds of fraud; tracing proceeds using lowest intermediate balance method); In re Mazon, 387 B.R. 641 (Bankr. M.D. Fla. 2008) (proceeds of fraud sufficiently traced into purchase of condominium), rev’d in part on other grounds, 395 B.R. 742 (M.D. Fla. 2008); Synod of S. Atl. Presbyterian Church v. Magpusao (In re Magpusao), 265 B.R. 492 (Bankr. M.D. Fla. 2001) (allowing equitable lien on home bought with funds stolen by wife when husband knowingly benefited from her fraud); Bizarro v. Half Dental Franchise, L.L.C., 422 P.3d 1230 (Nev. 2018) (unpublished) (narrow fraud exception applies only if homestead is purchased with ill-gotten funds); Maki v. Chong, 75 P.3d 376 (Nev. 2003) (home purchased with traceable proceeds of fraud subject to equitable lien for benefit of victim); In re Estate of Byrom, 2013 WL 3967432 (Tex. App. July 32, 2013) (homestead exemption does not protect funds misappropriated by a fiduciary; affirming grant of constructive trust on homestead); Paulman v. Pemberton (In re Paulman), 633 N.W.2d 715 (Wis. Ct. App. 2001) (homestead exemption does not protect home purchased with funds converted from judgment creditor). But cf. In re Morgan, 2010 WL 4922581 (Bankr. E.D. Tenn. Nov. 29, 2010) (allowing debtor to exempt home purchased by her child’s father with proceeds of massive Ponzi scheme; although exemption may not be good against certain creditors—that is, the victims—it is good against creditors in general); In re Laing, 329 B.R. 761 (Bankr. M.D. Fla. 2005) (denying equitable lien when debtor was, at most, a “net recipient” and not an “active participant” in Ponzi scheme); In re McClung, 327 B.R. 690 (Bankr. M.D. Fla. 2005) (repairs to homestead with funds removed, without creditor permission, from account pledged as collateral did not constitute fraudulent or egregious conduct sufficient to justify lien on homestead).

  • 56 Crawford v. Silette, 608 F.3d 275 (5th Cir. 2010) (Tex. law) (imposing equitable lien on home of Ponzi-schemer’s girlfriend, who did not know that gift used to pay down mortgage was proceeds of scheme); In re Mamtek US, Inc., 588 B.R. 72 (Bankr. W.D. Mo. 2018) (mortgage paid down with proceeds of fraud; no innocent spouse defense because spouse benefitted from use of the funds); In re Thiel, 275 B.R. 633 (Bankr. M.D. Fla. 2001) (“fraudulent or egregious act” shown when mortgage paid down with proceeds of debtor-husband’s fraud; equitable lien on homestead property could be imposed even if joint-owner wife was innocent); Hirchert Family Tr. v. Hirchert, 65 So. 3d 548 (Fla. Dist. Ct. App. June 17, 2011) (proceeds of breach of fiduciary duty invested in homestead; equitable lien trumps innocent spouse’s homestead right in order to prevent unjust enrichment). But see Williams v. Aloisi, 271 B.R. 676 (M.D. Fla. 2002) (home purchased with proceeds of sale of condominium may be protected if ex-wife did not know that funds ex-husband used to pay off condominium mortgage were derived from theft).

  • 57 In re Green, 2017 WL 957151 (B.A.P. 9th Cir. Mar. 10, 2017) (Nev. law) (creditor carried burden of proof that property was purchased with funds misappropriated by a fiduciary; traceability was a key issue); In re Court, 2014 WL 3400521 (Bankr. M.D. Fla. July 11, 2014) (requiring a very high standard of proof; fraud or egregious conduct not sufficiently shown when issue was propriety of certain withdrawals from trust fund); In re Boykin, 465 B.R. 665 (Bankr. S.D. Ala. 2012) (granting exemption for insurance policy when creditor failed to show how much, if any, of proceeds of husband’s fraud were used to purchase it); In re Levasseur, 482 B.R. 15 (Bankr. D. Mass. 2012) (creditor failed to show that home was purchased or mortgage paid down with proceeds of fraud); In re Landry, 2009 WL 5110670 (Bankr. D. Mass. Dec. 16, 2009) (burden on creditor to show home purchased with proceeds of wrongdoing; not shown here where debtor bought house with funds owned before the fraud); In re Romano, 353 B.R. 738 (Bankr. D. Mass. 2006) (creditor failed to prove homestead purchased with proceeds of embezzlement; constructive trust denied); Kyle v. Tuttle, 2012 WL 6097232 (Minn. Ct. App. Dec. 10, 2012) (traceability must be shown by clear and convincing evidence; burden not carried here, issue whether legitimate funds were deposited in account along with fraud proceeds). But cf. Henry v. Rizzolo, 2012 WL 4092604 (D. Nev. Sept. 17, 2012) (tracing need not be “dollar for dollar,” creditor need only identify “the relevant pathways”; denying exemption for annuities when fraudulently transferred funds were placed in account from which funds were drawn to buy the annuities, and defendant did not show what other funds were in account).

  • 58 EXEMPT: In re Addison, 540 F.3d 805 (8th Cir. 2008) (applying Minn. Stat. § 513.44(b); fraud not shown in pay down of mortgage or purchase of individual retirement accounts, so they are exempt); Shaia v. Meyer (In re Meyer), 244 F.3d 352 (4th Cir. 2001) (Va. law) (debtor-husband’s use of non-exempt inheritance to pay off mortgages on home owned with non-debtor wife in tenancy by entireties not fraudulent transfer; home was exempt); In re Bradley, 294 B.R. 64 (B.A.P. 8th Cir. 2003) (Ark. law) (home purchased during period of financial distress with proceeds of fair, arms-length sale of non-exempt property was exempt); In re Danduran, 438 B.R. 658 (B.A.P. 8th Cir. 2010) (N.D. law), aff’d, 657 F.3d 749 (8th Cir. 2011); In re Hodes, 287 B.R. 561 (D. Kan. 2002) (investing proceeds of non-exempt assets in improvements to homestead did not defeat exemption of homestead or of funds prepaid to builder); In re Bland, 2018 WL 7222862 (Bankr. C.D. Ill. Nov. 29, 2018) (Illinois statutory presumption that exempt property purchased within six months of bankruptcy filing was purchased with intent to defraud is rebuttable; here, presumption rebutted where debtors, who used inheritance to purchase two used cars, showed family’s need for reliable transportation); In re Love-Baker, 2013 WL 6898920 (Bankr. S.D. Tex. Dec. 31, 2013) (large payment on mortgage, using proceeds of non-exempt stock, at time when debtor faced large judgment, not fraudulent; legitimate business reasons shown when debtor had been advised that stock market was likely to become unstable during government shutdown); In re Halinga, 2013 WL 6199152 (Bankr. D. Idaho Nov. 27, 2013) (close call, but intent to hinder creditors not shown; couple whose business was failing paid off home mortgage with proceeds of sale of non-exempt liquor license; no evidence that debtors knew about exemption, also wife testified that she feared husband would waste license proceeds in effort to save business); In re Thomas, 477 B.R. 778 (Bankr. D. Idaho 2012) (use of non-exempt cash value of insurance policy to purchase retirement accounts did not exceed the limits of proper exemption planning; more than timing must be shown); In re Woller, 483 B.R. 886 (Bankr. W.D. Wis. 2012) (exemption planning that involves no concealment or subterfuge is permissible); In re Hall, 464 B.R. 896 (Bankr. D. Idaho 2012) (applying Idaho fraudulent transfer criteria to conclude that purchase of exempt annuity not an attempt to hinder creditors); In re Koehler, 2012 WL 719744 (Bankr. E.D.N.C. Mar. 5, 2012) (debtors caused furniture from unprofitable rental properties to be auctioned, and used proceeds to buy retirement funds; fraudulent intent not shown when debtors were in their fifties, rental properties had been bought as an investment for retirement, and sale was carried out openly, by impartial third party, for full value); In re Bronk, 444 B.R. 902 (Bankr. W.D. Wis. 2011) (intent to hinder not shown when widower of modest means, faced with overwhelming bills for wife’s last illness, purchased exempt annuity with non-exempt funds), aff’d in part, rev’d in part on other grounds, 775 F.3d 871 (7th Cir. 2015) (addressing scope of exemptions for college savings accounts and annuities); In re Ventura, 2011 WL 1979864 (Bankr. E.D.N.Y. May 20, 2011) (adding wife’s name to title of car previously titled in husband’s alone was permissible exemption planning, not fraudulent transfer); In re Williams, 2011 WL 883922 (Bankr. N.D. Ill. Mar. 11, 2011) (intent to hinder not shown; property transferred into tenancy by entireties at time when debtor was in default on business debt but no showing of misrepresentation, concealment, purchase of exempt property on credit, or transfer that resulted in insolvency); In re Champalanne, 425 B.R. 707 (Bankr. S.D. Fla. 2010) (use of non-exempt funds to purchase Florida homestead not sufficient to justify equitable lien, but creditor may take money judgment against transferee); In re Cassell, 443 B.R. 200 (Bankr. N.D. Ga. 2010) (conversion of non-exempt to exempt property not fraudulent in absence of intent to hinder creditors; allowing exemption for annuity purchased by sixty-five-year-old debtor, whose irregular work history prevented her from receiving employer pension); In re Channon, 424 B.R. 895 (Bankr. D. N.M. 2010) (thirty-two-year-old debtor’s use of non-exempt funds to purchase IRA not fraudulent when transfers were made openly, in only tax-qualified amounts, and saving for retirement was prudent); In re Beaudin, 2010 WL 3748735 (Bankr. D. Colo. Sept. 21, 2010) (purchase of IRA with tax refund, debtor’s only asset, not fraudulent when amount was modest and transfer was not concealed); In re Whatley, 2010 WL 1379690 (Bankr. W.D. Tex. Mar. 31, 2010) (sale on eve of bankruptcy of investment account that was declining in value, and use of proceeds to pay down mortgage, make needed home repairs, and assist financially distressed daughter not fraudulent); In re Montanaro, 398 B.R. 688 (Bankr. W.D. Mo 2008) (allowing exemption to debtor who sold mutual funds and purchased individual retirement account when amount involved was modest and extrinsic evidence of fraud not present); In re Hawkins, 377 B.R. 761, 767 (Bankr. S.D. Fla. 2007) (no grounds for equitable lien if debtor merely borrowed money, used it to buy home, and failed to repay it; creditor also failed to trace funds used to purchase real estate on which lien was sought for unpaid loan); In re Gosman, 362 B.R. 549 (Bankr. S.D. Fla. 2007) (encumbering homestead without creditor’s permission, although breach of contract not “fraud or egregious conduct” sufficient to justify lien on homestead); In re Peres, 2007 WL 2766776 (Bankr. N.D. Tex. Sept. 18, 2007) (conversion of non-exempt property to exempt property not fraudulent absent actual intent to defraud creditors); In re Agnew, 355 B.R. 276 (Bankr. D. Kan. 2006) (trustee failed to show fraudulent transfer; land swap involving family farmland was part of elderly mother’s estate planning); In re Moreno, 352 B.R. 455 (Bankr. N.D. Ill. 2006) (transfer to tenancy by entireties not fraudulent; move to “gang free” neighborhood was legitimate family purpose); In re Tolson, 338 B.R. 359 (Bankr. C.D. Ill. 2005) (transfer of property to tenancy by entireties not fraudulent if legitimate family purpose shown—here, estate planning); In re Vangen, 334 B.R. 241 (Bankr. W.D. Wis. 2005) (treating retirement-related annuities purchased with non-exempt funds as exempt in absence of extrinsic evidence of fraud); In re McGinnis, 306 B.R. 279 (Bankr. W.D. Mo. 2004) (debtors with “some legitimate reasons” for moving to Kansas could claim exemption in house purchased with sales proceeds of Missouri home and various non-exempt assets, despite evidence of intent to hinder creditors); In re Burghart, 2004 WL 2026805 (Bankr. D. Kan. Jan. 15, 2004) (investing non-exempt funds in exempt asset not fraud on creditor unless creditor has constructive trust on specific non-exempt asset; not fraudulent transfer to use year-end bonus to pay down debt on family truck); In re Rodriguez, 282 B.R. 194 (Bankr. N.D. Tex. 2002) (not fraud within meaning of exception to Texas homestead exemption when transfers—from mortgagor to ex-wife to debtor—arguably violated due on sale clause of mortgage); In re McCabe, 280 B.R. 841 (Bankr. N.D. Iowa 2002) (conversion of non-exempt to exempt property not per se fraudulent, even if done to put property beyond reach of creditors); In re Simms, 243 B.R. 156 (Bankr. S.D. Fla. 2000) (use of non-exempt proceeds of sale of homestead to purchase exempt annuity not fraudulent when debtors bought it because of advancing age and ill health, did not conceal the transaction, and though in debt were not subject to collection pressure); In re Young, 235 B.R. 666 (Bankr. M.D. Fla. 1999) (sale of non-exempt property in Illinois and purchase of Florida homestead not sufficient to show fraud); Rogone v. Correia, 335 P.3d 1122, 1128–1129 (Ariz. Ct. App. 2014) (homestead exemption is available without regard to equitable factors; exceptions are limited to those specified by statute and to damages resulting from a conveyance or wrongdoing involving homestead); Havoco of Am., Ltd. v. Hill, 790 So. 2d 1018 (Fla. 2001) (homestead purchased to protect assets from creditors is exempt); Conseco Servs., L.L.C. v. Cuneo, 904 So. 2d 438 (Fla. Dist. Ct. App. 2005) (purchase of homestead with non-exempt funds at time when litigation imminent not sufficient to justify lien on homestead); Robles v. Robles, 860 So. 2d 1014 (Fla. Dist. Ct. App. 2003) (equitable lien on homestead for delinquent alimony improper when failure of husband’s law practice impaired ability to pay and there was no showing of affirmative fraudulent or reprehensible conduct); Russell v. Black, 2000 Mass. Super. LEXIS 350 (Mass. Super. Ct. July 28, 2000) (filing a declaration of homestead at time when homeowner is threatened with lawsuit not a fraudulent transfer); Deyeso v. Cavadi, 66 A.3d 1236 (N.H. 2013) (allowing exemption for homestead purchased with funds provided by third party who was trying to avoid judgment debt; homestead is exempt so long as neither homeowner nor third party engaged in fraud or illegality to obtain the funds); First Citizens Bank & Tr. Co. v. Blue Ox, L.L.C., 812 S.E.2d 418 (S.C. Ct. App. 2018) (postjudgment contributions to IRA not shown to be fraudulent; amounts were limited, transactions were not secret, and were in line with amounts contributed in longstanding pattern). See also Cadle Co. v. Newhouse, 20 Fed. Appx. 69 (2d Cir. 2001) (transfer of husband’s earnings to non-debtor wife was fraudulent, but New York earnings exemption continued to protect them, if needed for reasonable living expenses).

    NON-EXEMPT: In re Kelley, 2007 WL 2492732 (M.D. Fla. Aug. 30, 2007) (fraudulent transfer shown when debtor repaid sum borrowed against exempt life insurance when bankruptcy imminent and debtor insolvent); In re Coppaken, 572 B.R. 284 (Bankr. D. Kan. 2017) (use of non-exempt funds to pay down mortgage was fraudulent; intent shown by extensive efforts to conceal transaction, other fraudulent transactions, and false oaths); In re Wreyford, 505 B.R. 47 (Bankr. D.N.M. 2014) (conversion of non-exempt to exempt property not, without more, sufficient to show fraud, but transactions that placed all debtors’ property beyond reach of creditors after they had been sued were fraudulent enough to result in loss of exemption for IRAs and denial of bankruptcy discharge); In re Lafferty, 469 B.R. 235 (Bankr. D.S.C. 2012) (homestead exemption lost because of unclean hands; at time when large judgment was imminent, divorcing couple sold their interests in home to their respective lovers for no consideration and later took it back); In re Stanton, 457 B.R. 80 (Bankr. D. Nev. 2011) (reducing homestead by amount of fraudulent transfer; just before a large judgment was awarded against debtor, she gave non-exempt funds to her son, with the understanding that he would pay down her mortgage); In re Asumaa, 2010 WL 1379790 (Bankr. M.D. Fla. Mar. 31, 2010) (intent to hinder creditors shown; purchase of IRA with non-exempt funds ten days before bankruptcy); In re Sissom, 366 B.R. 677 (Bankr. S.D. Tex. 2007) (when “badges of fraud” present, homestead non-exempt up to amount of proceeds of sale of non-exempt stock used to purchase homestead); In re Orgeron, 2006 WL 335438 (Bankr. W.D. Mo. Feb. 2, 2006) (individual retirement account is exempt except for contributions made in contemplation of bankruptcy); In re Ziegler, 239 B.R. 375 (Bankr. C.D. Ill. 1999) (“sale” of homestead to close relative, while debtors continued to live there and pay mortgage, was fraudulent); In re Sholdan, 218 B.R. 475 (Bankr. D. Minn. 1998) (finding fraudulent transfer when ninety-year-old in fragile health and faced with large personal injury judgment quietly invested life savings in a house, moved into it, and immediately filed for bankruptcy just before dying), aff’d, 217 F.3d 1006 (8th Cir. 2000); Gilchinsky v. Nat’l Westminster Bank, 732 A.2d 482 (N.J. 1999) (rollover of funds from New York employer’s ERISA plan to New Jersey individual retirement account was fraudulent, and individual retirement account was non-exempt, when moving funds to New Jersey would help debtor avoid collection of New York judgment for funds embezzled from employer); Huntington Nat’l Bank v. Winter, 2011 WL 1378727 (Ohio Ct. App. Apr. 13, 2011) (debtor, who was in serious financial trouble, used large amount of non-exempt funds to pay premiums on existing life insurance policies; policies not exempt). See also Soza v. Hill (In re Soza), 542 F.3d 1060 (5th Cir. 2008) (Tex. law) (even without intent to defraud, transfer of an inheritance into an annuity on eve of bankruptcy as way of preventing bankruptcy court from adjudicating its ownership is fraudulent). Cf. In re Jennings, 533 F.3d 1333 (11th Cir. 2008) (fraudulent transfer shown under bankruptcy law when debtor facing large judgment paid large sum to builder who was working on homestead; debtor’s testimony about transaction “lacked candor”). See generally National Consumer Law Center, Consumer Bankruptcy Law and Practice § 10.2.3.4.3 (12th ed. 2020), updated at www.nclc.org/library (bankruptcy law restrictions where debtor converts non-exempt property into homestead with fraudulent intent).

  • 59 In re Vorhes, 2018 WL 799151 (N.D. Iowa Feb. 5, 2018) (under Iowa law, transfer of exempt property cannot be fraudulent regardless of motive); Evans v. Wolinsky, 347 B.R. 9 (D. Vt. 2006) (transfer of entireties property to wife individually, at time when no joint debts, not fraudulent; no harm to creditors when property was already exempt before transfer); In re Arends, 506 B.R. 516 (Bankr. N.D. Iowa 2013) (debtors cashed in exempt insurance policy, deposited check in bank account until it cleared, and wired funds to mortgage company to pay down mortgage on exempt homestead; short period in non-exempt bank account did not destroy exemption, when this was only practical way to transfer funds from one exempt form to another); In re Ellis, 454 B.R. 404 (Bankr. S.D. Tex. 2011) (exempt annuity purchased with rollover of exempt IRA); In re Matthews, 360 B.R. 732 (Bankr. M.D. Fla. 2007) (transfer from one form of exempt property to another not fraudulent); In re Dismore, 2005 WL 419709 (Bankr. M.D. Fla. Jan. 4, 2005) (transfer of asset from exempt tenancy by entireties status into name of non-debtor spouse is not fraudulent transfer); In re Simms, 243 B.R. 156 (Bankr. S.D. Fla. 2000) (proceeds of sale of home are exempt if used, without fraudulent intent, to purchase exempt annuity); Alamanza v. Salas, 2014 WL 554807 (Tex. App. Feb. 22, 2014) (transfer of homestead can never be fraudulent transfer; key issue is whether property was homestead at time of transfer); Martinek Grain and Bins, Inc. v. Bulldog Farms, Inc., 366 S.W.3d 800 (Tex. App. 2012) (transfer of exempt homestead to trust could not be fraudulent); Goebel v. Brandley, 174 S.W.3d 359 (Tex. App. 2005) (purchase of savings bonds for children by payroll deduction was transfer of exempt property, in this case unpaid wages, which could not be fraudulent transfer). See also Bizarro v. Half Dental Franchise, L.L.C., 422 P.3d 1230 (Nev. 2018) (transfer of exempt property cannot be treated as a fraudulent transfer). But see In re Pringle, 495 B.R. 447 (B.A.P. 9th Cir. 2013) (Idaho law) (rejecting “no harm no foul” rule; transfer of property—here, a homestead—may be fraudulent even if the property, if retained by the debtor, would be exempt); In re Johnson, 579 B.R. 796 (Bankr. W.D. Ky. 2017) (transfer of property that debtor could have, but had not, claimed as exempt can be avoided as fraudulent; rejecting the “no harm no foul” rule); In re Panepinto, 487 B.R. 370 (Bankr. W.D.N.Y. 2013) (homestead exemption lost by transfer of half-interest to wife; under New York’s Uniform Fraudulent Conveyance Act, transfer from one exempt form to another can be fraudulent; distinguishing cases from states that have enacted the more recent Uniform Fraudulent Transfer Act).

  • 60 Havoco of Am., Ltd. v. Hill, 790 So. 2d 1018 (Fla. 2001) (homestead purchased to protect assets from creditors is exempt, and fraudulent transfer laws do not apply; homestead is subject to sale only for the three reasons listed in state constitution—that is, taxes, obligations to purchase or improve homestead, and obligations for labor performed on the realty; expressing no opinion on whether family support obligation is another exception).

  • 61 Tex. Prop. Code Ann. § 42.004(a) (West). See In re Coates, 242 B.R. 901 (Bankr. N.D. Tex. 2000) (Texas fraudulent transfer statute applies only to personal property, so homestead purchased with proceeds of sale of non-exempt property in order to defeat creditors was exempt but motor vehicle was not).

  • 62 Havoco of Am., Ltd. v. Hill, 790 So. 2d 1018 (Fla. 2001) (legislature is powerless to subject constitutional homestead exemption to fraudulent transfer statute). See also Torgelson v. Real Prop. Known As 17138 880th Ave., 749 N.W.2d 24 (Minn. 2008) (constitutional homestead exemption bars forfeiture for state offenses); State v. One 1965 Red Chevrolet Pickup, 37 P.3d 815 (Okla. 2001) (homestead exemption found in state constitution protects against state criminal law forfeiture, but statutory personal property exemption does not).

  • 63 See, e.g., In re Duffin, 457 B.R. 820 (B.A.P. 10th Cir. 2011) (Utah insurance exemption makes exception for premiums paid within one year of “a creditor’s levy or execution”; denying exemption for amount of premiums paid within one year of bankruptcy); Henry v. Rizzolo, 2012 WL 4092604 (D. Nev. Sept. 17, 2012) (Nevada annuity exemption has fraud exception; denying exemption for annuities purchased with check from account into which funds had been fraudulently transferred); In re Preuit, 2013 WL 2467976 (Bankr. D. Idaho June 7, 2013) (Iowa annuity exemption has fraud exception; fraud shown when debtors, facing large judgment for failed real estate deal, sold all their non-exempt properties and purchased a $120,000 annuity); In re Hall, 464 B.R. 896 (Bankr. D. Idaho 2012) (noting that Idaho annuity exemption excepts amounts paid with intent to hinder creditors, but applying Idaho fraudulent transfer criteria to conclude that purchase of exempt annuity here was not attempt to hinder); In re Meredith, 2012 WL 1835516 (Bankr. C.D. Ill. May 18, 2012) (Illinois tenancy by entireties exemption has fraud exception; transfer was fraudulent when transfer into tenancy by the entireties occurred on same day large judgment was entered against husband); In re Baker, 273 B.R. 892 (Bankr. D. Wyo. 2002) (Wyoming annuities exemption excepts transfers to hinder creditors; sale of non-exempt property and purchase of annuities on eve of bankruptcy, placing all assets beyond reach of creditors, went beyond “exemption planning” and was fraudulent); Leibman v. Grand, 981 S.W.2d 426 (Tex. App. 1998) (Texas exemption for annuities makes exception if premium payments were made in fraud of creditors; annuity not exempt when husband, who was grossly delinquent in various obligations resulting from divorce, sold non-exempt property and purchased annuity). See also Tewhey v. Bodkins, 2012 WL 1390180 (Mass. Super. Ct. Jan. 6, 2012) (Massachusetts denies homestead exemption for judgment debts arising from “fraud, mistake, duress, undue influence or lack of capacity”; here, for multiple-damages UDAP judgment). But cf. In re Currey, 2018 WL 993637 (Bankr. N.D. Ill. Feb. 16, 2018) (Illinois statute denying exemption to property exempt “under this section” purchased with non-exempt funds to hinder creditors does not apply to bar exemption of retirement funds, which are exempted by a different section).

  • 64 See, e.g., Skelton v. Wash. Mut. Bank, 61 S.W.3d 56 (Tex. App. 2001) (widow had no claims on homestead, and mortgage not invalidated by lack of her signature, when couple agreed husband alone should apply for mortgage because of wife’s bad credit record and husband falsely informed lender he was single). See also In re Pich, 253 B.R. 562 (Bankr. D. Idaho 2000) (using building as residence in violation of zoning laws did not in itself preclude homestead exemption, but debtor was estopped by his rezoning application, which was an implicit representation that he would not live there); James v. Thaggard, 795 So. 2d 738 (Ala. Civ. App. 2001) (denying homestead exemption on grounds of equity and good conscience when borrower falsely represented he was unmarried but then defended foreclosure on grounds that wife had not signed mortgage). Cf. Denmon v. Atlas Leasing, L.L.C., 285 S.W.3d 591 (Tex. App. 2009) (spousal signature requirement cannot be used to defraud creditor; here, no evidence that wife—who, while living apart from husband, bought house and contracted for repairs—deceived creditor about her marital status; mechanic’s lien is void).

  • 65 See §§ 15.2.5.1–15.2.5.3, infra.