Idaho’s Fraudulent Transfer Act: When is a transfer a transfer?

Idaho prohibits debtors from making unlawful transfers to avoid paying its creditors. Idaho Code §§ 55-913 and 914. Creditors are permitted to bring an action to “avoid” such transfers to satisfy its claims against the debtor. Idaho Code § 55-916. Critically, a creditor has the burden of proving such transfers occurred.

So, when has a transfer occurred under the Fraudulent Transfers Act? The act broadly defines “transfer” as “every mode … of disposing of or parting with an asset or an interest in an asset.” Idaho Code § 55-910(16). Generally, a transfer of an asset “is not made until the debtor has acquired rights in the asset” that was transferred. Idaho Code § 55-915(4).

If not for the Act’s definition of an “asset,” this broad definition would encompass most, if not all, transfers. Idaho case law has defined an asset as “‘property of a debtor’ … however, [it] does not include property … ‘to the extent that it is generally exempt under non-bankruptcy law.’” Dunham v. Dunham, 128 Idaho 55, 58, 910 P.2d 169, 172 (App. 1994); See also Idaho Code § 55-910(2)(b). This limitation on what constitutes an “asset” necessarily limits when a “transfer” has occurred under the Act.

If a debtor transfers property that is exempt under non-bankruptcy law, such property is not an “asset.” Critically, if the property is not an “asset,” then a “transfer” could not have occurred because the debtor did not dispose of an “asset” or an interest in an “asset.”

Assume Mr. Debtor has a judgment against him in the amount of $10,000.00. Mr. Creditor has been garnishing Mr. Debtor’s wages to satisfy this judgment. Under Idaho Code § 11-207(1), only 25% of Mr. Debtor’s wages can legally be garnished. Mr. Debtor then takes the remaining 75% of his wages and deposits the money to his wife’s bank account. Mr. Creditor goes to seize these funds from Mr. Debtor’s bank account only to find out that the money is in Mr. Debtor’s wife’s account.

Mr. Creditor is considering an action against for Mr. Debtor under the Fraudulent Transfers Act. Has there been an unlawful “transfer?” Idaho Code § 11-207(1) limits garnishment to 25%, which exempts the remaining 75% of Mr. Debtor’s wages. Critically, this exemption is provided by a non-bankruptcy law. This means that the wages deposited into the wife’s account are not an “asset.” If the wages are not an “asset,” Mr. Debtor has not made a “transfer” under the Act.

Before bringing an action against a debtor, creditors must evaluate whether a “transfer” occurred and whether such “transfer” can be avoided to satisfy the creditors’ claims. Likewise, debtors must evaluate whether they made a “transfer” in violation of the Act before conceding to allegations of fraudulent transfers under the Act.