3 minutes reading time (521 words)

Importance of Solvency Affidavit Highlighted in Asset Protection

The very recent case of Goldberg v. Rosen[1] is a case of first impression with respect to asset protection trusts, as it is the first time a settlor’s Affidavit of Solvency was so pivotal in the case.

An Affidavit of Solvency is typically required not only by the asset protection attorney but by the trustee(s) of the trust as well, for these professionals want the client to swear or attest, in a notarized document, as to the client’s financial well-being as of the time of settlement.  In an Affidavit of Solvency, the client will typically represent that (among other things) there are no pending, threatened, or expected claims or outstanding judgments, and that the client is not contemplating bankruptcy at the time the trust is settled.

Goldberg v. Rosen involved Akram Niroomand (“Debtor”), who in 2007 hired Howard D. Rosen, Esq. of Donlevy-Rosen & Rosen, P.A. (“Rosen”) in Florida to prepare an offshore asset protection trust (the “Trust”), for $45,000 in legal fees.

About a year later, a judgment of close to $3 million (the “Judgment”) was entered against Debtor.  About six months later, Debtor filed for bankruptcy protection.  Alan Goldberg was the bankruptcy trustee (“Trustee”) in Debtor’s Chapter 7 bankruptcy case.

Trustee filed a claim against Rosen seeking to recover the $45,000.00 in attorney fees and costs paid as fraudulent transfers under 11 U.S.C. Section 548, arguing, among other things, that Debtor was insolvent at the time of the Debtor’s transfers to the Trust.

“The bankruptcy court conducted a bench trial of Trustee’s claims.  The Trustee presented only testimony of the Debtor and then rested, although the district court [in subsequent proceedings] admitted ‘voluminous documentary and testimonial evidence.’  Included in that evidence was the Debtor’s Affidavit of Solvency executed when she retained the defendants’ services in which she testified that she was solvent and could pay her anticipated debts, including lawsuit judgments.” [2]

“The Debtor testified that she was insolvent at the time of the transfers, but the record evidence, including her affidavits (sic) of solvency, was used to impeach her.  As a result, the bankruptcy court did not credit her testimony.”[3]

The bankruptcy court found against the Trustee, and the Trustee appealed to the District Court.  The District Court also found against the Trustee, who then appealed to the United States Court of Appeals for the 11th Circuit.

The Court of Appeals found that there was no establishment of insolvency with respect to potential constructive fraud or fraudulent transfer claims, and stated:

“In fact, the record is abundant with records of solvency.  The witness signed a solvency affidavit, which she said she did not read, but the Court notes—noted that the witness could remember some things in the way of financial numbers of a rather complicated structure down to the penny, and other things, she couldn’t remember at all.  But aside from that, it’s the opinion of the Court that the [Trustee’s] case is woefully lacking in any proof on any of the counts, and therefore, [Rosen’s] motion to dismiss should be granted.”[4]



[1] 2012 WL 4933299 (11th Cir. October 17, 2012).
[2] Id. at *1.
[3] Id.
[4] Id. at **1-2.

Generous 2012 Gift and Estate Tax Opportunities Ex...
Rush to the Finish Line

Seminars & Events:

April, 2017 - CELESQ
“An Asset Protection Planning Primer for Estate Planning, Tax and Creditors Rights Lawyers”
Live Web Cast
May 31 – June 1, 2017 - 

SOUTHPAC TRUST OFFSHORE PLANNING INSTITUTE CONFERENCE 2017, “Asset Protection in a Changing World” (31 May 2017) and “Questions & Answer Panel on Industry Challenges to Asset Protection Structures” (1 June 2017)
Las Vegas, Nevada

 

View More Recent Seminars and Events

Contact Information

Barry S. Engel
Email: info@engelreiman.com