If a spouse purchases a home with his or her own funds and is solely liable on the mortgage note, placing title jointly in both spouses might be avoidable as a constructively fraudulent transfer, at least under South Carolina law, according to Bankruptcy Judge Elisabetta G.M. Gasparini of Charleston.
More precisely, placing title in both spouses is presumptively an avoidable gift in South Carolina that can be rebutted by “clear and convincing evidence as to the intent of the transfer.”
In 2018, a couple acquired real property. For the down payment, the husband took money from his bank account, according to Judge Gasparini’s November 2 opinion. The wife signed the mortgage, but only the husband was liable on the mortgage note. Judge Gasparini referred to taking title jointly as giving the wife a half interest in the property. The opinion does not say whether the property was the couple’s homestead.
More than three years later, the husband filed a chapter 7 petition. The trustee sued the wife and the mortgagee for avoidance of a constructively fraudulent transfer under South Carolina law commonly known as the Statute of Elizabeth.
As Judge Gasparini explained, the statute allows avoidance of a transfer if: (1) the debtor made a transfer and received no valuable consideration; (2) the debtor had a creditor at the time of the transfer; and (3) the debtor cannot pay the creditor in full.
The nondebtor wife and the bank filed a motion to dismiss for failure to state a claim. They contended there was no transfer from the husband to the wife. Without a transfer, they argued, there could be no avoidance. They also said that the trustee’s theory ignored the realities of marriage.
The trustee countered by saying that the wife’s half interest in the property was a “gift” falling squarely within the Statute of Elizabeth. Judge Gasparini denied the motion to dismiss without hinting who may win down the road.
Judge Gasparini analyzed the facts to determine whether there was a transfer. She said that titling the property jointly deprived the husband of assets with which he could have paid his creditors, “arguably” speaking. To define the question more precisely, she analyzed decisions by the South Carolina Supreme Court and the Fourth Circuit’s interpretations of South Carolina law.
The South Carolina Supreme Court has said that a transfer by one spouse to another for no consideration is presumed to be a gift. Because the presumption is one of fact, it may be overcome by “parole evidence or circumstances showing a contrary intention.” Green v. Green, 117 S.E.2d 583, 586 (S.C. 1960).
Similarly, the Fourth Circuit said that the presumption may “be rebutted by clear and convincing evidence as to the intent of the transfer.” In re Pfister, 749 F.3d 294, 298-299 (4th Cir. 2014).
As she must do on a motion to dismiss, Judge Gasparini reviewed the complaint in a light most favorable to the trustee, especially given the “broad construction” of the Statute of Elizabeth by the courts in South Carolina.
Judge Gasparini denied the motion to dismiss because “an issue of fact remains to the extent that the joint titling of the property can be viewed as a ‘gift.’”
Observations
South Carolina family law and property law may have something to say about the eventual outcome of the fraudulent transfer suit.
Because the property was acquired during marriage and would appear to have been marital property, did the nondebtor wife accrue an interest in the property regardless of whether she was in title? Likewise, was the husband’s bank account marital property in which the wife had an interest? Did South Carolina property law necessitate taking title jointly in terms of giving the lender a mortgage enforceable against the interests of the wife in marital property?
The intricacies of other South Carolina law might counter the presumption of a gift.
If a spouse purchases a home with his or her own funds and is solely liable on the mortgage note, placing title jointly in both spouses might be avoidable as a constructively fraudulent transfer, at least under South Carolina law, according to Bankruptcy Judge Elisabetta G.M. Gasparini of Charleston.
More precisely, placing title in both spouses is presumptively an avoidable gift in South Carolina that can be rebutted by “clear and convincing evidence as to the intent of the transfer.”
In 2018, a couple acquired real property. For the down payment, the husband took money from his bank account, according to Judge Gasparini’s November 2 opinion. The wife signed the mortgage, but only the husband was liable on the mortgage note. Judge Gasparini referred to taking title jointly as giving the wife a half interest in the property. The opinion does not say whether the property was the couple’s homestead.
More than three years later, the husband filed a chapter 7 petition. The trustee sued the wife and the mortgagee for avoidance of a constructively fraudulent transfer under South Carolina law commonly known as the Statute of Elizabeth.
As Judge Gasparini explained, the statute allows avoidance of a transfer if: (1) the debtor made a transfer and received no valuable consideration; (2) the debtor had a creditor at the time of the transfer; and (3) the debtor cannot pay the creditor in full.