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Trustee Established Presumption of Fraud under Section 548(a)(1)(A) to Recover the Alleged Transfer as Fraudulent

Doeling v. O’Neill (In re O’Neill), Nos. 14-30569, 15-07005, 2016 Bankr. LEXIS 1771 (U.S. Bankr. D.N.D. Apr. 19, 2016)

The Trustee brought an adversary complaint to avoid Debtor Roger K. O’Neill’s transfers of interests in the marital home and pastureland to Defendant Theresa C. O’Neill under 11 U.S.C. § 548(a)(1), alleging that the Debtor made the transfers with actual and constructive intent to hinder, delay or defraud his creditors. The Trustee also alleged that the transfers were preferential transfers to an insider under 11 U.S.C. § 547 (b). The Trustee alleged that the Debtor and the Defendant colluded to make the property transfers with intent to hinder, delay or defraud Debtor’s creditors. The Trustee argued the Debtor’s testimony that he expected to die and wanted his children to receive the pastureland and the Defendant to receive the home was a direct evidence of his intent to defraud his creditors.

The Court found that the transfer of a marital home and pastureland to the Defendant in a divorce settlement was presumptively fraudulent since the transfer was all of the Debtor’s nonexempt assets of significant value to the Defendant with whom the Debtor shared a close personal relationship shortly after receiving medical treatment which resulted in substantial debt. Although the Trustee offered evidence sufficient to establish a presumption of fraud under section 548(a)(1), the Defendant established that she was a good faith transferee who gave value for the transfer under section 548(c). Thus, the Court held that the Defendant may only retain the transfers to the extent she gave value and the Trustee was entitled to recover the difference.

The Defendant next argued that she was not a “creditor” of the Debtor under the Bankruptcy Code and, therefore, the Trustee cannot establish all the elements of his preference claim under Sec. 547 (b). The Court found that while the Trustee was able to establish the four elements of Sec. 547 (b), the Trustee did not meet his burden of proving that Debtor was insolvent at the time he transferred his interests in the marital home and pastureland. Therefore, the Trustee’s section 547(b) preference action failed.