Lisa and Raul Galaz were divorced in 2002. As part of the divorce settlement, Li

Question

Lisa and Raul Galaz were divorced in 2002. As part of the divorce settlement, Lisa was granted a 25 percent interest in Artist Rights Foundation, LLC. (ARF), a California limited liability company formed by Raul. One of ARF's assets was royalties accruing from the music of a band known as the Ohio Players. The royalties generated almost $1 million between 2005 and 2010, but Lisa received no share of the profits despite her ownership interest in ARF. Raul claimed that he had exclusive rights to the royalties as such rights were purchased in 2005 by Segundo Suenos LLC a Texas limited liability company, formed by Raul and his father Alfredo. ARF was subsequently dissolved in 2006 Lisa subsequently filed for bankruptcy and sought a court order declaring the transfer of rights from ARF to Segundo Suenos to be invalid. One of the issues before the court was whether the purported transfer of royalties from ARF to Segundo Suenos was a fraudulent transfer. The court focused its attention on the presence or absence of several "badges of fraud." What is a "badge of fraud"? What type of conduct should be considered indicative of fraud in the context of bankruptcy proceedings? [In re Galaz, 2010 WL 4702446 (W.D. Tex. 2010)]

Explanation / Answer

Badge of fraud refers to conduct or facts or circumstances which indicate that one party is trying to defraud the other party especially the court, the opposing party, or the creditor

2) The following are the conduct which can be considered indicative of fraud in the context of bankruptcy proceedings

a) A person who conceals assets to avoid to have them forfeit.

b) An individual who intentionally files incomplete or the false forms

c)If a person files several times using false information or real information in several jurisdictions.

d) If a person diverts its fund to other business

e) If the financial statements are shown as misappropriate.

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