QUESTION: I have a client who recently got a $2.5 million judgment
against him. He has around $1.5 million in airplanes in a 501 (c) (3)
corporation that is part of a museum. Do you know if these assets are
protected from the creditor? His lawyers do not really know. My take
is that they would not be protected as the corporation provides tax
benefits but not asset protection.

REPLY: Sounds like there isn't going to be an answer to this question
until it's decided by a judge. The creditor is surely going to argue
that the transfer was a fraudulent conveyance made to hinder, delay or
evade payment to the creditor. That will bring into question the
timing of the gift of the planes to the museum and whether the state
of jurisdiction includes future creditors as having rights under the
fraudulent transfer laws of that state. In some states, only existing
creditors at the time of a transfer can bring a fraudulent transfer
claim. Another factor that will influence a judge is whether the
client has retained any rights to the use of these planes.

If the client was solvent at the time of making the transfer, that
would be used as a defense to a fraudulent transfer claim. However,
contrary to some books and articles, it's my understanding that
solvency is not an absolute defense.

If the museum was founded and managed by the client, that would
probably encourage a judge to lean toward the creditor. But if the
museum was a large and respected institution that was wholly unrelated
to the client, the judge would probably give the rights of the museum
some consideration. And -- an independent museum would be likely to
hire an attorney to protect its claim to the airplanes.

If you enter [ fraudulent transfer solvency ] in Google or Yahoo you
will find a number of web documents that provide more insight into the
issue.

Vern

This is not a legal opinion because I'm not a lawyer.