Fraudulent Conveyance as a Cause of Action in Connecticut

Fraudulent conveyance is a legal action aimed at reversing or voiding a transfer of property made with the intent to defraud creditors. Under Connecticut law, a creditor may challenge a transfer if it was done to avoid paying debts or to place assets beyond the reach of legitimate claims. Fraudulent conveyance claims are governed by the Uniform Fraudulent Transfer Act (UFTA), which focuses on both intent and the effect of the transfer.

In Labbe v. Carusone, the Connecticut Appellate Court identified the two primary ways a fraudulent conveyance can be established:

1. Transfer Without Substantial Consideration, Rendering the Transferor Insolvent
   The plaintiff must prove that the transfer was made without adequate value (i.e., without substantial consideration) and that the transfer left the transferor unable to meet their financial obligations. This is known as constructive fraud and does not require proof of actual fraudulent intent. The court looks at the financial condition of the transferor before and after the transaction to determine whether insolvency resulted.
2. Transfer Made with Fraudulent Intent, in Which the Grantee Participated
   The plaintiff can also establish a fraudulent conveyance by showing that the transfer was made with actual intent to defraud creditors and that the recipient (the grantee) was aware of or participated in the fraudulent intent. This requires evidence of bad faith, deception, or an intent to hinder, delay, or defraud creditors. Indicators of fraudulent intent include secret transfers, lack of documentation, or transferring assets to close family members or associates.

To succeed, the party challenging the conveyance must present clear and convincing evidence of either constructive or actual fraud. Courts closely examine the facts and circumstances surrounding the transfer to determine if it was legitimate or a scheme to defraud creditors.

Find the Law

The elements of fraudulent conveyance are described in Labbe v. Carusone, 115 Conn. App. 832, 835 (Conn. App. Ct. 2009):

“The party seeking to set aside a conveyance as fraudulent bears the burden of proving either: (1) that the conveyance was made without substantial consideration and rendered the transferor unable to meet his obligations; or (2) that the conveyance was made with a fraudulent intent in which the grantee participated.”

This legal framework protects creditors by ensuring that transfers made to evade obligations can be set aside and the assets recovered.