Amid all of the Penn State mess, the discussion is shifting from potential criminal liability to civil liability, as victims are talking to lawyers about filing civil lawsuits to recover monetary damages.
Recently, the New York Times reported that Penn State coach Joe Paterno transferred full ownership of his house to his wife, Sue, for $1.00 (and for “love and affection”) in July 2011 (4 months before the scandal was publicly reported). The local taxing authorities place the value of the house at nearly $594,484.40. Lawyers for Paterno say that the transfer was simply an estate planning tool.
If you had read my post about fraudulent transfers, however, you might wonder if the transfer was made with an eye toward getting valuable assets out of Paterno’s name and into the name of somebody who would not be named in litigation (i.e. where someone with a judgment against Mr. Paterno couldn’t reach it).
Lawyers often urge clients to make similar transfers, especially when faced with lawsuits. “What’s the harm,” they might say, because, maybe, the creditors will not notice it or four years will pass. If discovered, the “fix” might be to simply convey the property back, right?
Not always. Here’s the downside: a crafty collections lawyer won’t just ask to set aside the transfer; instead, the creditor would ask that it be awarded a monetary judgment against the transferee of the property, a judgment in the amount of the value fraudulently given.
So, in the Paterno case, that plaintiff would ask for a money judgment against Mrs. Paterno for $594,483.40, which is the value of the property, minus the $1.00 Mrs. Paterno paid. Mrs. Paterno has never been named as a potential civil defendant in any of the potential lawsuits, but this $1 transfer certainly opens that discussion.
The lesson here is to be careful about being the recipient of somebody else’s estate (or asset protection) planning. They might drag you down with them.
One thought on “Joe Paterno’s Estate Planning Sure Sounds like a Fraudulent Conveyance”
The NY Times didn’t bother to read the deed. The property was not transferred to his wife, it was instead sold to a Qualified Resident Property Trust. This type of trust is often used to remove assets from a potentially large taxable estate.