Joe Paterno Conveys Home to Wife For $1, “Love and Affection”
For topical reasons, I have had no reason to post about the despicable Penn St. child abuse scandal on this blog. Until now — when I came across an interesting New York Times article on Joe Paterno’s recent real estate activity. The Times reports that this summer “Joe Pa.” transferred title to his State College home to his wife for $1 and “love and affection.” Some say the transfer was intended to avoid the inevitable fallout from the Penn St. child abuse scandal and legal action brought by victims of the scandal. Joe Paterno’s attorney, however, says that this transfer was part of the Paternos’ long standing estate plan.
Fraudulent Transfers
The debate centers over what’s known legally as a fraudulent transfers. Fraudulent transfers are property conveyances made with the specific intent to place the property outside the reach of creditors, or made where “the debtor received less than a reasonably equivalent value in exchange for the transfer and made it while insolvent.” The latter definition, in plain English, means the owner was broke and received less than market value for the sale of the property. Fraudulent transfers can be undone by the courts so creditors can tap into a home’s equity to satisfy legal judgments.
In Joe Paterno’s case, the $1.00 stated consideration for the transfer to his wife typically raises a red flag as a potential fraudulent transfer. If Paterno can prove that the transfer was indeed made as part of a legitimate estate plan, then he could avoid a fraudulent transfer determination. If the transfer is determined to be fraudulent so as to avoid liability for the child abuse scandal, the transfer to his wife can be undone by his creditors with the help of the court. And this is true even if Joe were to file bankruptcy. Moreover, the look-back period for fraudulent transfers is rather long–as long as 4 years under the Massachusetts Uniform Fraudulent Transfer Act, and even up to 10 years in the case of conveyances into trusts (where the debtor holds the beneficial interest) under 2005 bankruptcy law amendments.
Also, fraudulent transfers are typically excluded from coverage under owner’s title insurance policies. So if you purchased a property which later becomes the subject of a fraudulent transfer lawsuit, you may be on your own, which is a scary proposition.
Asset Protection, Homesteads and More
There’s nothing wrong or illegal about protecting your assets for the future. There are a myriad of legal and safe methods from protecting your property. But, if you wait until there is a problem, it’s usually too late to fix it. The same is true for asset protection planning. Simply put, do it as early as possible, well before creditors are chasing you down.
The first choice should almost always be to declare homestead protection on your principal residence. We’ve written about the new, enhanced Massachusetts homestead protection quite a bit. In a nutshell, a homestead will protect up to $500,000 in equity from most creditors. It’s a relatively simply form recorded with the county registry of deeds.
For more sophisticated asset protection devices such as trusts, family limited partnerships, LLC’s, and even offshore vehicles, I would recommend a reputable estate planning attorney. My friends at Pabian & Russell in Boston are a good place to start.
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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. Please contact him if you need legal assistance purchasing residential or commercial real estate.
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