Spousal Transfers of Property: Fraudulent or Legal?

court_justice_interior_architecture-scaledThe separation of property between spouses is a legally recognized process, allowing them to transfer assets. However, what happens when this separation is done with fraudulent intent? In the case of Kathryn and Paul Holland, creditors accused the couple of fraudulently dividing their assets to avoid payment. The creditors filed a motion to intervene in the divorce proceedings, alleging that the Hollands knew about pending civil lawsuits against them. Despite their objections, the trial court granted the motion filed by Ms. Holland, prompting the creditors to appeal the decision. The following post summarizes the appeal. 

DeRamus and David Hodge filed a sexual battery lawsuit against Paul Holland, who was married to Kathryn Holland. Hodge died before the matter was settled. The trial court awarded one hundred thousand dollars in damages to DeRamus and the Estate of David Hodge. Before the lawsuit’s completion, Holland pled guilty to sexual battery in a different lawsuit and was sentenced to twenty-two years in prison. Mr. and Mrs. Holland separated during this time and sought to divide their assets with a separation of property agreement. Ms. Holland filed for divorce based on Mr. Holland’s felony conviction. Her petition was granted.  

The creditors filed a Motion to Intervene in the divorce proceedings in which they alleged the Hollands knew of the civil lawsuits against them and sold their assets to avoid payment. Ms. Holland filed a motion arguing there was no cause of action. The trial court granted her motion, which prompted an appeal from the creditors. 

The Louisiana Court of Appeal for the Third Circuit found the creditors properly stated a cause of action. Under Louisiana law, a spouse’s creditor can “object to the separation of property or modification of their matrimonial regime as being in fraud of their rights.” La. C,C, art. 2376. The creditors argued when Mr. Holland donated his interest in the family home to Ms. Holland, and he was doing so to defraud his creditors. They further argued Ms. Holland knew the fraud, making both complicit and the transfer void. 

The creditors argued the trial court improperly sustained the exception of prescription. The court of appeal held the contracts were not absolutely null but relatively null, as the terms of the agreement the Hollands made were not illicit. Further, the court determined because the sexual battery occurred before the judgment of separation, the creditors were allowed to nullify the act. 

The original separation of property agreement between the Hollands required the court’s approval to annul the judgment. In cases of fraud, the law states the standard three-year period of peremption does not apply. The court next had to decide whether the amendment was retroactive or prospective. The creditors’ right to plead peremption vested four years after the sexual battery case, before the law took effect. The amendment was then prospective. 

Under the fraud claim, the law states married parties can enter into separate property agreements if they have approval from the court, however, a judgment obtained by fraud can be annulled within one year of discovery. See La.C.C.P. art. 2004. The record did not state when the creditors found out about this agreement. The creditors did not mention the separation of property agreement in their original motion. The divorce petition mentioned the agreement. The court speculated the creditors knew of the agreement in October of 2012 but did not file to annul until almost two years later. Thus, the one-year statute prohibited the creditors’ claim. The appeals court affirmed the trial court’s judgment against the creditors. 

This case serves as a vivid reminder of the criticality of understanding and adhering to filing deadlines when pursuing legal action. Successfully navigating the intricacies of the law requires the expertise of a skilled lawyer who can interpret the relevant statutes, accurately assess filing deadlines, and provide guidance on the best course of action. Legal counsel can also help gather and present evidence effectively, ensuring the interests of creditors are protected.


Written by Berniard Law Firm Blog Writer: Gabriela Chilingarova

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