6/22/2009 Epstein v. Galuska 362 Ill.App. 3d 36, 839 N.E. 2d 532 (1st Dist.

2005) ISSUE: Before the circuit court, the issue to be decided was whether the Debtor Richard Galuska s inter-spousal transfer of his interest in a marital property held in joint tenancy with his wife to tenancy by the entirety to be owned solely by her during litigation was fraudulent or not. The Uniform Fraudulent Transfer Act is a statute that details which property transfers are thought to be fraudulent under the law. Under Illinois Law, a person must be debt to a creditor to be found liable for a fraudulent conveyance of property, 740 ILCS 160/1. Also, fraudulent transfers can be classed in two distinct ways - actual fraud or fraud in fact, and constructive fraud, or fraud in law. Actual fraud can occur regardless of insolvency of the debtor or any responsibility of the transferee receiving the property, the amount of consideration exchanged for the property. For actual fraud to be proven, the intent of a debtor to defraud a creditor must be made established. While intent is necessary for determining actual fraud, constructive fraud, or fraud in fact, can be proven regardless of the debtor s intent based on several elements. It relies upon the circumstances surrounding the transfer and the relationship of the parties, 11 U.S.C.A. § 548 (a)(1)(B). The elements include: (1) a transfer of the debtor s interest in a property, (2) the timing of the transfer must have occurred within one year of filing bankruptcy, (3) whether the debtor must have received consideration less than the reasonable or fair market value for the property being transferred (4) whether the transaction took place at an arm s length, and (5) whether the debtor could not pay his debts before the transfer occurred. Creditor Barry Epstien loaned money to Debtor Richard Galuska in the 1980s. Litigation surrounding repayment of the debt began in 1992. After further litigation stemming from the Debtor s failure to repay the settled upon $55,000, the Creditor found that the Debtor gave up his interest in his home for no consideration to his wife with a recorded quit claim deed, conveying his property from a jointly held tenancy to tenancy by the entirety owned solely by his wife. He used a trust to transfer his interest in his property to his wife, declaring virtually no assets. Although the court found no direct evidence of actual fraud, the court reviewed the circumstances to determine if constructive fraud had occurred. Actual intent must be proven to determine actual fraud. Constructive fraud can be proven regardless of the Debtor s intent. Relying upon circumstances surrounding the transfer, the court looks for badges of fraud section 548 (a)(1)(A), among them being (1) a transfer of the debtor s interest in any property, (2) a special relationship between the debtor and the transferee, (3) an insufficient amount of consideration paid for the value of the property transferred, (4) the inability caused on



behalf of the Debtor to repay the debt as a result of the transfer of the property (4) a debt to a creditor existed, and (5) the transfer took place at an arm s length. After years of litigation over an antecedent debt, Debtor Galuska decided to convey his interest of his jointly held property to his wife in a trust, transferring his interest to his property without declaring any assets, while undergoing litigation for monies owed to Creditor Galuska, knowing a judgment lien would soon be placed against him. With his wife as the owner of the LaGrange property, Debtor maintained control and access to the property, which he conveyed to her for no consideration and was able to keep at an arm s length. Debtor declared a judgment from a defunct company as his only asset, releasing the only means of collection available to his creditor when he transferred his interest in his property. CONCLUSION: Debtor Galuska tried to create an environment that made him look as if he had no assets to avoid collection on a loan debt from Creditor Epstien. As a result, the Circuit Court voided his transfer of his home to his wife.