Financial Advisor's Dodgy Asset Protection Backfires in Divorce: Turner v. Turner

In Turner v. Turner, we have yet another divorce case in which the husband's dodgy asset protection scheme against a creditor came back to haunt him in a later divorce.

On May 5, 2015, Jeffrey Turner resigned from Fifth Third Bank and became an independent financial advisor.?He moved the family’s accounts, including the joint brokerage account with his wife Sarah, to his new firm.?In late May of 2015, he was sued by Fifth Third.?To avoid Fifth Third from coming after the funds, he retitled the joint brokerage account into Sarah’s name only in August of 2015 (but with Jeffrey as TOD beneficiary).?While this may have triggered Ohio's Uniform Fraudulent Transfer Act, this never became an issue. In November of 2015, Fifth Third dismissed its lawsuit.?The brokerage account remained in Sarah’s name only, relatively untouched for the next five years with no significant additions or withdrawals.?

Flash forward a few years - Sarah files for a divorce. At issue is whether the account was marital or separate property. The trial court found that Jeffrey had made a gift to her of the property and therefore it was her separate, rather than marital, property, even though she had not originally listed the asset as her separate property in the initial filings. Under Ohio R.C. 3105.171(A)(6)(a)(vii), as in many states, gifts and bequests are typically separate property.

The appellate court affirmed, citing two more Ohio cases I have written short blog articles about that have similar lessons: Dayal and Soley. While the court did not cite any doctrine of "clean hands", the fact that Jeffrey was obviously trying to evade potential creditors through the strategy did not help his case in trying to say he never intended to make a gift:

"We further find Jeffrey’s transfer of the marital property, with the purpose of avoiding a creditor, constitutes clear and convincing evidence of donative intent to convert the marital property into Sarah’s separate property."

I've said it a dozen times in articles and CLE presentations on SLATs, fraudulent transfers and other asset protection and tax planning techniques: don't forget to examine the potential effect that such transfers may have on division of property in a future divorce, which is probably much, much more likely to happen statistically than bankruptcy!