Rutgers School of Law, OAL case ACPE125

91 N.J.L.J. 193
March 28, 1968

ADVISORY COMMITTEE ON PROFESSIONAL ETHICS

Appointed by the New Jersey Supreme Court

OPINION 125

Fraudulent Conveyance

    The following inquiries have been submitted for consideration:     1. May an attorney representing prospective purchasers (husband and wife) of residential property arrange for taking title in the name of the wife alone for the sole purpose of preventing the lien of an existing judgment against the husband from attaching to the property involved?
    2. May an attorney representing prospective purchasers (husband and wife), who have entered into a contract to purchase residential property in their joint names and thereafter, upon disclosure of the existence of a judgment against the husband, seek to have the contract assigned to the wife alone, arrange to have title taken in her name alone to avoid having the judgment attach as a lien against the interest of the husband in the property?
    Participation by an attorney in a fraudulent conveyance with actual knowledge of its true character and purpose constitutes unethical and unprofessional conduct. In re DePamphilis, 30 N.J. 470 (1959). The Court said at page 483: "Any such conduct is unquestionably unethical and unprofessional despite the fact that it may be thought to serve the client and no one may be actually injured. It is dishonorable, enables violation of the law, and brings the profession into disrepute."

    Our Supreme Court recently held that knowing participation by an attorney in a usurious transaction likewise constitutes unprofessional or unethical conduct. In re Giordano, 49 N.J. 210 (1967).
    The inquiry postulates that the attorney knows the intention of the parties in the transaction. The question then is whether under the circumstances set forth there is a fraudulent conveyance within the meaning of R.S. 25:2-1 et seq. Our courts have held that where a debtor purchases property from a third party and has the vendor transfer title directly to his nominees, the property is available to his creditors under the provisions of the Uniform Fraudulent Conveyance Law, R.S. 25:2-7; Englander v. Jacoby, 132 N.J. Eq. 336 (Ch. 1942) The principal has been stated thus:
            It is of course obvious that where A. purchases lands, paying for the same out of his own funds, but causing the deed to be executed and delivered to B., who pays nothing, the transaction is equivalent to a voluntary conveyance from A. to B. The same would be equally true of a similar transfer of personal property; ... And where a debtor purchases and pays for property but title is taken in the name of another, that property is just as available to creditors as it would be if the debtor had first taken title in his own name and then transferred it. Sweeney v. Carroll, 118 N.J. Eq. 208, 214 (Ch. 1935).

    The Fraudulent Conveyance Act and our court decisions are predicated on the assumption that when the conveyance in question was made, the debtor was either insolvent or was rendered insolvent by such conveyance. The answer to the present inquiry then turns upon the question of who is providing the consideration for the purchase of the premises involved. If under the first set of facts, the consideration for the purchase of the property comes solely from the wife, there is no transfer of beneficial interest from husband to wife and therefor no fraudulent conveyance, so that the attorney would not be participating in a fraudulent conveyance. On the other hand if any part of the consideration for the purchase of the property comes from the husband and if the transfer of such consideration is made during insolvency or renders the husband insolvent, then under the stated principles the conveyance is voidable as to creditors and participation by the attorney would be unethical.
    With respect to the second inquiry concerning an assignment of the husband's rights under a contract, the rationale would be the same. If the husband had any interest in the contract, then his transfer without consideration to his wife would constitute a conveyance voidable as to creditors, if at that time he was insolvent or was thereby rendered insolvent. R.S. 25:2-7 defines "conveyance" as "every payment of money, assignment, release, transfer, lease, mortgage or pledge of tangible or intangible property ... ." The transfer of a valuable right under the contract would be a conveyance within the meaning of the Uniform Fraudulent Conveyance Act.
    We conclude, therefore, that it would be unethical for the attorney to participate in the purchases as outlined if the husband was transferring assets of value to his wife without consideration, when insolvent or rendered insolvent by the conveyance.
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