Can the Assets of a LLC Be Attached for a Personal Debt?
Full Question:
Answer:
It is possible the LLC assets could be challenged as a fraudulent conveyance. For example, transfering assets to a LLC right before filing bankruptcy may throw up red flags for examination.
The elements of a fraudulent conveyance transfer are defined as follows by the Uniform Fraudulent Transfer Act:
(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:
(1) with actual intent to hinder, delay, or defraud any creditor of the debtor; or
(2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:
(i) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
(ii) intended to incur, or believed or reasonably should have believed that he [or she] would incur, debts beyond his [or her] ability to pay as they became due.
Courts will in some cases ignore this separate corporate identity and render the shareholders, officers, or directors personally liable for acts they have taken on the corporation's behalf. This assignment of liability is known as piercing the corporate veil. Courts will pierce the corporate veil if a shareholder, officer, or director has engaged in fraud, illegality, or misrepresentation. Courts also will pierce the corporate veil when the corporation has not followed the statutory requirements for incorporation or when corporate funds are commingled with the personal property of an individual or when a corporation is undercapitalized or lacks sufficient funding to operate.
