Divorce Transfer Can Be Fraudulent Conveyance, MN High Court Rules

Minnesota case law summary by Attorney Richard Clem: fraudulent conveyance.

Citizens State Bank Norwood Young America v. Gordon Brown. MN fraudulent conveyance

Gordon Brown was the guarantor for commercial loans made by Citizens State Bank Norwood Young America to TCB Tool Corporation and Cool Air International. Both TCB and Cool Ari subsequently defaulted on those loans, and the bank sued Brown to enforce the guaratnee. The bank obtained a default judgment against Brown. At the time, Brown was 93 years old, and he died while this appeal was pending. He was married to Judy Brown, age 55, but she was not a party to the guarantees. While the lawsuit was pending, Mr. Brown filed a petition to dissolve the marriage, and they entered into a marital termination agreement, which was approved by the court. In that agreement, he retained much of his property, but transferred an investment account valued at about $1.2 million and other property to his wife.

Since the bank was now unable to collect under the guarantees, the bank sued Judy Brown under the Minnesota Uniform Fraudulent Transfer Act, Minn. Stat. 513.41-.51. The trial court agreed that the transfers were fraudulent, and the defendant appealed to the Minnesota Court of Appeals. On April 29, 2013, the Minnesota Court of Appeals affirmed. The Minnesota Supreme Court then agreed to hear the case.

The defendants argued that the fraudulent transfer act did not apply to transfers as part of a marital dissolution decree. The high court examined the statute, which defines a transfer as "every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset." The court held that the transfer in this case clearly fell within that definition.

The court then examined the transfer in this case and concluded that they did fit within the statute. Accordingly, the court affirmed the lower courts' rulings.

No. A12-1257 (Minn. July 9, 2014).

Please see the original opinion for the court's exact language.


Richard P. Clem is an attorney and continuing legal education (CLE) provider in Minnesota. He has been in private practice in the Twin Cities for 25 years. He has a J.D., cum laude, from Hamline University School of Law in St. Paul and a B.A. in History from the University of Minnesota. His reported cases include: Asociacion Nacional de Pescadores a Pequena Escala o Artesanales de Colombia v. Dow Quimica de Colombia, 988 F.2d 559, rehearing denied, 5 F.3d 530 (5th Cir. 1993), cert. denied, 510 U.S. 1041 (1994); LaMott v. Apple Valley Health Care Center, 465 N.W.2d 585 (Minn. Ct. App. 1991); Abo el Ela v. State, 468 N.W.2d 580 (Minn. Ct. App. 1991).

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