If you transfer property to family members or other persons to avoid your creditors, you cannot assume that you are entitled to demand the return of the property at a later date.
The B.C. Supreme Court recently considered this issue in Pattinson v. MacDonald 2021 BCSC 652.
In 1986, Ms. Pattinson transferred a 160 acre farm property to her children, the defendants. She now sought an order that the property was held by the defendants in trust for her. She sought the return of the property, along with an accounting of rents, profits and income received by the defendants in respect of the property. She also claimed that her children were unjustly enriched by her upkeep of the property.
Her children claimed that they owned the property as a result of the 1986 transfer. They claimed that (1) they paid consideration for the transfer, and (2) the transfer to them was a fraudulent conveyance and/or intended to avoid claims by her creditors.
Ms. Pattinson claimed that the property was transferred upon legal advice “to protect the lands from frivolous claims … and to ensure the land stayed in control of the family.” She had been named as a defendant in family law proceedings commenced against her common law spouse (by his ex-spouse).
The children asserted that the property was transferred into their names (1) under an agreement with Ms. Pattinson’s mother involving the exchange of gold wafers, and (2) to avoid various creditors. They claimed that they had knowledge of the transfer in 1986 when it was made. They did not ask for the property to be transferred into their names. They were not asked to hold the property in trust and did not agree to hold it in trust.
Ms. Pattinson denied that gold wafers were provided in exchange for the transfer. She claimed that her mother gifted the gold wafers to her. The issue of whether consideration was paid for the transfer was relevant to the issue of whether the property was held in resulting trust. Where a transfer is made for no consideration, the onus is on the recipient (in this case the children) to prove that a gift was intended. In Pattinson, the defendants had not met the onus required to prove that consideration was paid.
However, the court held that even where no consideration is paid for the transfer, a party who transfers land to avoid creditors may not reclaim it.
It was clear that the purpose of the 1986 transfer was to avoid claims. The court held that it was likely that the children were named by their middle names on the transfer document to avoid creditors knowing that she transferred property to her children. She also failed to refer to owning property in bankruptcy proceedings.
Ms. Pattinson was successful in protecting her property from creditors, but she could not now seek the return of the property 35 years later. She also failed to show the elements of unjust enrichment, and even if she had, her claim would have been dismissed on the basis that she delayed in making her claim until 33 years after the transfer.
Transferring assets for the purpose of avoiding creditors carries significant risk. Creditors may have certain remedies against the assets despite the transfer, but there is the additional risk that transferee will refuse to return the property once the creditors are no longer a concern.