In Mejia v. Reed, 31 Cal. 4th 657 (2003), the California Supreme Court held that: 1) transfers of real property under a Marital Settlement Agreement (“MSA”) may be fraudulent transfers under the Uniform Fraudulent Transfer Act (“UFTA”); 2) for purposes of determining insolvency, the value of future child support should not be considered; and 3) unearned income is not an asset for purposes of the UFTA unless it is subject to levy by a creditor.
Facts and Procedure:
Danilo Reed (Husband) had an extramarital relationship with Plaintiff Rhina Mejia that led to the birth of a child. In the subsequent divorce proceeding between Husband and Violeta Reed (Wife), a marital settlement agreement (“MSA”) was entered into, pursuant to which Husband transferred all his interests in jointly held real property to Wife and Wife conveyed all her interest in Husband’s medical practice to him. The MSA also provided that Husband would be solely responsible for his extramarital child support obligation. Within less than 2 years, Husband abandoned his medical practice, moved in with his mother and had no assets and little income.
Plaintiff Rhina Mejia then instituted this proceeding, asserting that the MSA was a fraudulent transfer under the UFTA. Plaintiff claimed that that the MSA was a fraudulent transfer by Husband to Wife with intent to hinder Plaintiff in her collection of future child support. Husband moved for summary judgment for failure by Plaintiff to provide evidence of intent to defraud on the part of Husband. Additionally, Husband claimed that the value of his medical practice at the date of separation was reasonably equivalent to the real property interests he conveyed to Wife. Plaintiff argued that the fair market value of the Husband’s medical practice was less than the present discounted value of Husband’s future child support, and thus Husband was insolvent at the time of the transfer rendering the MSA subject to the fraudulent transfer laws under the UFTA for making a transfer for less than reasonably equivalent value at a time when the debtor was insovent.
The trial court ruled that the UFTA applied to the MSA but granted Husband’s summary judgment motion on the grounds that no evidence was presented of actual intent to defraud and that the transfer did not render Husband insolvent. The Court of Appeal reversed, agreeing that the UFTA applied to MSAs and that the existence of triable issues of fact precluded summary judgment.
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