DEFINITION of 'Fraudulent Conveyance'
The illegal transfer of property to another party in order to defer, hinder or defraud creditors, or to put such property out of the reach of a creditor. Fraudulent conveyance, for instance, would occur if an individual sold all of his possessions for an insignificant amount of money to a spouse, relative, business partner or friend.
Civil cases of fraudulent conveyance can be tried in a court of law. If the transfer of property is determined to be fraudulent, the court can require the person holding the assets (the person to whom the conveyance was made) to hand the assets, or an equivalent monetary value, over to the creditor.
Also called fraudulent transfer.
BREAKING DOWN 'Fraudulent Conveyance'
In order for somebody to be found guilty of fraudulent conveyance, it must be proven that the accused's intention for transferring the property was to put it out of reach of a known creditor. Two types of fraudulent transfer exist: actual fraud and constructive fraud. Actual fraud occurs when a debtor intentionally donates or rids himself of assets as part of an asset protection scheme.
Constructive fraud refers to fraud that occurred unintentionally or in a manner that was not intended to be fraudulent. The first case on fraudulent transfer law dates back to the late 1500s, when an English farmer tried to defraud his creditors by selling his flock of sheep while remaining in control of the flock. At shearing time, the man shore the sheep and marked them as his despite the fact that he had supposedly sold the sheep to another farmer.