Some noncustodial parents (NCPs) transfer either property or income to another individual, partner, or corporation in order to avoid paying a child support debt. This conveyance is considered a method of defrauding creditors, and state law provides that such transactions can be voided or settled in the best interest of a child support creditor. North Carolina adopted the Uniform Fraudulent Transfer Act of 1984 (effective October 1, 1997) in order to modernize and comport its law with states that have also adopted this law. These provisions can be found in NCGS 39-3A.
The following definitions should assist in understanding the terminology used in the Uniform Fraudulent Transfer Act:
The property of the debtor, but this does not include property encumbered by a lien, property exempt under non-bankruptcy law, or interest in property held in tenancy by the entireties not subject to process by a creditor holding a claim against only one tenant.
A right to payment.
A person who has a claim (usually the obligee in child support claims.)
The liability on a claim.
In general terms, either a relative, a partner, or a corporation of the debtor. In order to determine if a person to whom a transfer has been made is considered an insider, consult your CSS attorney.
If the sum of the debtor's debts is greater than all of the debtor's assets.
Anything that can be the subject of ownership.
Every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset and include payment of money release, lease, and creation of a lien or other encumbrance. The CSS attorney decides if the transfer in question fits this definition and if the transfer could be considered fraudulent.
A transfer that is made or an obligation that is incurred by an NCP can be deemed fraudulent:
In determining fraudulent intent, consideration is given to whether:
If a creditor has obtained a judgment on a claim against the debtor, the creditor can levy execution on the asset transferred or its proceeds, if the court so orders.
A transfer is not voidable if:
If the action is voidable by the creditor, the creditor can obtain a judgment for the value of the asset transferred, or the amount necessary to satisfy the child support claim, whichever is less. This judgment can be entered against the first transferee of the asset or the person for whose benefit the transfer was made, or any subsequent transferee other than a good-faith transferee. A good faith transferee is entitled to a lien on or a right to retain any interest in the asset transferred, enforcement of any obligation incurred, or a reduction in the amount of the liability on the judgment.
Action with respect to a fraudulent or voidable transfer or obligation is extinguished (barred from taking action) unless action is brought:
In those situations where it appears that an NCP has purposefully transferred assets to depress his/her ability to pay support and thus avoid paying a child support debt, it is possible to void this transfer using the Uniform Fraudulent Transfer Act. The CSS caseworker might not learn of such transfers unless alerted by conversations with the custodial parent or NCP. Upon learning of a possible fraudulent transfer, the caseworker can check such sources such as DMV, Register of Deeds, or the county tax assessment office. It is extremely important to verify whether or not the NCP has filed for bankruptcy as this action might not be considered appropriate by the Bankruptcy Court. If the agent believes through initial research that the case could qualify for relief under the Act, the case should be referred to the CSS attorney for appropriate court action.
The CSS attorney makes any determination of whether or not the transfer fits the definition of a fraudulent transfer and files the appropriate pleadings with the court to seek relief. The CSS attorney decides which remedy is appropriate to seek such as asset attachment, voiding the transfer, or an injunction to prevent further disposal of the property. No automated functionality, documents, or interfaces support this process; caseworkers must document these remedies in the case record.
For questions or clarification on any of the policy contained in these manuals, please contact your local county office.