Transfers to Cook Islands Trust Not Voidable

In a previous blog, we discussed the “Bellinger” case and how the court concluded that the debtor’s actions were defensible. To briefly recap the facts, this was the matter in which Mr. Bellinger had made transfers of about $1.7 million to a Cook Islands trust after he knew the primary obligors (on a promissory note that he had personally guaranteed) were defaulting.

No Voidable Transfers: Even though the Court concluded that Mr. Bellinger could not be held in contempt (as discussed in detail in our previous blog), we now address the other line of attack that the lender (BB&T bank) raised, but to no avail in the 2016 court-issued opinion.

The “other line of attack” to which we are referring was whether the transfers to the Cook Islands trust were what are termed as either “fraudulent transfers” or “voidable transactions.” If they had, then generally this gives a court the power to pursue the transferee to recover the transferred assets.

Despite the fact that Mr. Bellinger created, and transferred $1.7 million to, an offshore trust, the Court concluded that this transfer did not involve any fraudulent transfers or voidable transactions. Apparently only two aspects of fraudulent transfer definitions were at issue, specifically the Court considered whether there was a transfer: (1) with an actual intent to hinder BB&T or (2) that was reasonably anticipated to result in Mr. Bellinger no longer being able to pay his financial obligations as they came due. The Court found insufficient evidence of either.

Motivations: The Court analyzed Mr. Bellinger’s motives for transferring assets to the offshore trust. The Court concluded that (based on Mr. Bellinger’s testimony) Mr. Bellinger was not concerned with the BB&T guarantee at the time he created and funded the trust; rather Mr. Bellinger was motivated to ensure that he would have assets available for his retirement in face of possible competing interests (such as medical bills) that would otherwise seek to diminish his retirement funds down the road.

He also thought (although mistakenly) that the collateral for the BB&T loan was more than sufficient to cover the debt. In light of the above, the Court found no evidence of any fraudulent transfer or voidable transaction.

Takeaway: The “takeaway” here is that before an individual considers transferring assets to a trust that would result in those assets being out of reach of third parties who may someday seek to attach or cease those assets, the individual should not be in a situation that he or she anticipates would leave insufficient assets to satisfy an anticipated creditor’s claims.

Case cite: Branch Banking & Trust Co. v. Hamilton Greens, LLC, 2014 WL 1493086 (S.D. Fla. Mar. 24, 2014), 2016 WL 3365270 (S.D.Fla., Jan. 3, 2016) and 2016 WL 3251165 (S.D. Fla. June 14,2016)