A married man inherited approximately $160,000 from his father. An inheritance is considered the sole property of the beneficiary, even if the beneficiary is married--unless the beneficiary takes action to convert the inheritance to marital property. Immediately after receiving this inheritance, he used it to completely pay off two mortgages on his home, which he owned in tenancy by the entirety with his spouse.
The husband also individually owed more than $100,000 in unsecured debt. About 1-1/2 years after he paid off the mortgages, he filed an individual bankruptcy action. His wife was not a party to this action.
Under the law, a creditor of only one spouse cannot reach property owned in tenancy by the entirety, when only the debtor spouse files in bankruptcy.
However, because of the timing of the transfer--within two years of the filing of the bankrupty petition--the bankruptcy court determined the mortgage payoff was fraudulent, and entered a judgment against the husband and the wife in the amount of the $160,000.
According to the court, there was a transfer from one entity (the husband) to a different entity (the husband and wife). Had the payment been from joint funds, rather than from the husband's inheritance, there would have been no "transfer," and therefore no fraud.