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A Better Partnership
December 11, 2014

COA holds transfers of assets used to pay ordinary household expenses remain subject to challenge under MUFTA

The Michigan Uniform Fraudulent Transfer Act (“MUFTA”) was designed to prevent creditors from transferring their property in bad faith before creditors could reach it.  The Michigan Court of Appeals in Bentley Terrace Dillard v. Mark E. Schlussel, No. 315485, held that a debtor’s transfer of assets for the purpose of paying the debtor’s ordinary household expenses does not immunize the transfers from challenge under the MUFTA.
Mark Schlussel, a Michigan attorney, owed Bentley Terrace Dillard a substantial judgment as a result of a failed investment in an LLC the two funded, for which both pledged personal guarantees.  When the LLC closed its doors in 2004, Dillard paid off the entire line of credit and sued Schlussel for his share.  In 2008, a jury awarded Dillard a substantial judgment and the Arizona Court of Appeals affirmed.  In 2009, the Oakland Circuit Court domesticated the Arizona judgment, which by then exceeded $500,000.   
During the time Schlussel and Dillard’s LLC was failing, Schlussel also owned a company called M & A Enterprises.  This company received deposits, but had no assets, no contracts, and no receivables.  Schlussel listed this company on his application for the LLC’s line of credit.  In 2004, however, Schlussel conveyed M & A to his wife, receiving no consideration for the transfer.  Dillard’s complaint alleges that from 2004-2009 Schlussel transferred large amounts of money to M & A accounts held by his wife.  It was further alleged Schlussel fraudulently transferred the cash value of a life insurance policy to his wife.  In 2010, Schlussel also stopped depositing his law firm draw checks into his checking account after Dillard garnished that account.  Instead, he endorsed checks to his wife who deposited the checks into her personal account or accounts held by M & A.
Under MUFTA’s applicable statute of limitations, the circuit court granted summary disposition of all claims for transfers occurring more than six years before the filing of Dillard’s complaint.  The circuit court then granted summary disposition of the remaining claims, stating that funds transferred from Schlussel to his wife are exempt from MUFTA claims because they were used to pay household expenses.  The Court of Appeals upheld the grant of summary disposition of all claims falling outside of the Act’s six year statute of limitations, but reversed and remanded the remaining claims holding that the applicable question under the act was whether the Schlussels used the transferred funds to pay reasonable expenses and whether those expenditures constitute reasonably equivalent value for the transfers, which must be decided at trial.

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