Won the judgment, could not collect: asset tracing found two properties transferred to a spouse before the judgment became final
Asset tracing ·
The debtor's own name was already empty, but the timing of the transfers left a record. With the schedule in hand, counsel pursued a fraudulent conveyance claim and the client recovered 60% of the debt
The engagement
The client had won a claim for unpaid goods. After the judgment became final, they applied for enforcement, and the court reported that the debtor had no assets. The client used the enforcement title to obtain the debtor's property and income statements from the tax bureau. Same answer: no real property, no vehicles, only a little interest income. The money had existed. The case had run two years. The debtor was still living in the same house.
What we found
The debtor's name was indeed empty now. A few months earlier, two properties had still been his.
Both had been transferred as gifts between spouses, after the first-instance judgment and two months before the judgment became final. The transferee was the debtor's spouse.
Put the dates in order and the case speaks for itself: the debt came first, then the filing, then the loss at first instance, then the two gifts, then the judgment becoming final, and finally an enforcement attempt that found nothing. The debt predated the transfers, and the transfers followed the loss. Those two facts were the core of the report.
Gifts between spouses are exempt from gift tax but still require a filing with the tax bureau at registration, and that filing is a second record of when the transfer took place. We included it.
What the client did
Counsel proceeded to set aside the transfers as fraudulent conveyances. Under the Civil Code, where a debtor's gratuitous act prejudices a creditor, the creditor may apply to the court to revoke it and to restore the position. A gift is gratuitous, so the creditor need only show prejudice, not that the spouse knew. The right expires one year from when the creditor learns of the grounds, so counsel filed promptly. The case settled during proceedings, with the debtor paying in instalments. The client recovered 60% of the debt.
What carries over to other cases
- A nil-asset report is not the end of tracing. The tax bureau's statement shows the present; an asset's past is a separate question.
- Which came first, the debt or the transfer, often decides whether the debt is still recoverable.
- The right to revoke has a time limit. The clock starts the day you see the transfer on the record.
FAQ
- Can a gift to a spouse always be set aside?
- No. The act must prejudice the creditor, meaning that after the transfer the debtor's remaining assets are insufficient to pay. If other assets remain available for enforcement, the court will not revoke it. Revocation also requires a separate action; the transfer is not void automatically.
- What if the cause of registration is a sale rather than a gift?
- A sale is an onerous act and the threshold is much higher: the creditor must show that the debtor knew the transfer would prejudice the creditor and that the spouse knew it too. Courts look at whether the price was actually paid and where the funds came from. In such cases the focus shifts to the money trail.
- When does the one-year period start?
- From the time the creditor learns of the grounds, which in practice is the day the transfer becomes visible. Ten years from the transfer itself is the absolute limit. This is why we recommend looking back immediately after a nil-asset report.