A. A debtor is insolvent if, at a fair valuation, the sum of the debtor's debts is greater than the sum of the debtor's assets.
B. A debtor that is generally not paying the debtor's debts as they become due other than as a result of a bona fide dispute is presumed to be insolvent. The presumption imposes on the party against which the presumption is directed the burden of proving that the nonexistence of insolvency is more probable than its existence.
C. Assets under this section do not include property that has been transferred, concealed or removed with intent to hinder, delay or defraud creditors or that has been transferred in a manner making the transfer voidable under the Uniform Voidable Transactions Act.
D. Debts under this section do not include an obligation to the extent it is secured by a valid lien on property of the debtor not included as an asset.
History: Laws 1989, ch. 382, § 3; 2015, ch. 54, § 11.
ANNOTATIONSThe 2015 amendment, effective January 1, 2016, substituted "Uniform Voidable Transactions Act" for reference to the former Uniform Fraudulent Transfer Act and clarified the meaning of "insolvency"; in Subsection A, after "insolvent if,", added "at a fair valuation", after "than", deleted "all" and added "the sum", and after "assets", deleted "at a fair valuation"; in Subsection B, after "debtor", deleted "who" and added "that", after "paying", deleted "his" and added "the debtor's", after "due", added "other than as a result of a bona fide dispute", and after "insolvent.", added the last sentence; deleted Subsection C, relating to an insolvent partnership, and redesignated former Subsections D and E as Subsections C and D, respectively; and in Subsection C, after "Uniform", deleted "Fraudulent Transfer" and added "Voidable Transactions".
Purpose of the Uniform Fraudulent Conveyance Act is to protect creditors when a debtor has made a conveyance of his property which diminishes the creditor's assets to the detriment of the rights of the creditor. Michel v. J's Foods, Inc., 1983-NMSC-019, 99 N.M. 574, 661 P.2d 474.
Insolvency essential element. — To proceed under a theory of fraudulent conveyance, certain essential elements must be alleged and proved. Among these elements is the intent to hinder, delay or defraud creditors. Another element is the insolvency of the debtor. Allegation and proof of the commonly accepted badges of fraud can also be used to establish a fraudulent conveyance. American Cas. Co. v. Line Materials Indus., 332 F.2d 393 (10th Cir. 1964), cert. denied, 379 U.S. 960, 85 S. Ct. 646, 13 L. Ed. 2d 555 (1965).
Both insolvency and lack of consideration required. — This section clearly requires that both insolvency and lack of fair consideration be proven in order that a debtor's acts amount to fraud upon his creditors. First Nat'l Bank v. Abraham, 1982-NMSC-006, 97 N.M. 288, 639 P.2d 575.
"Badges of fraud". — Among the commonly recognized badges of fraud are: the insolvency or indebtedness of the debtor, the lack of consideration for the conveyance, the retention by the grantor of possession of the property, the close relationship between the transferor and the transferee and the threat or pendency of litigation. First Nat'l Bank v. Abraham, 1982-NMSC-006, 97 N.M. 288, 639 P.2d 575.
Conveyance by insolvent debtors without consideration fraudulent. — The assigning of mining leases to the corporation in return for which the corporation issued original stock in the names of the children, the insolvency of the judgment debtor and the failure of consideration from the children placed the transaction neatly within the language of this section. Atlas Corp. v. DeVilliers, 447 F.2d 799 (10th Cir. 1971), cert. denied, 405 U.S. 933, 92 S. Ct. 939, 30 L. Ed. 2d 809, reh'g denied, 405 U.S. 1033, 92 S. Ct. 1288, 31 L. Ed. 2d 491 (1972).
Where a husband who has become legally insolvent and whose tax difficulties have become apparent, effects a conveyance without consideration whereby husband and wife, holding as joint tenants, title to the residence to a trustee who then deeds it back to wife as the sole owner, the conveyance is in fraud of the rights of the United States under this section. United States v. Eaves, 499 F.2d 869 (10th Cir. 1974).
Prior loans and services fair consideration. — Conveyance of stock is not a fraudulent transfer where assignee receives his assignment from judgment debtor in consideration of prior loans and services. Atlas Corp. v. DeVilliers, 447 F.2d 799 (10th Cir. 1971), cert. denied, 405 U.S. 933, 92 S. Ct. 939, 30 L. Ed. 2d 809, reh'g denied, 405 U.S. 1033, 92 S. Ct. 1288, 31 L. Ed. 2d 491 (1972).
Fair salable value of corporation's assets not reflected by "forced-sale" auction. — An auction, due to its "forced sale" nature whose terms were "without reserve," did not reflect the fair salable value of a corporation's assets at the time of their conveyance to the debtor, which took place one year prior to the auction. Substantial evidence supported the finding that the corporation was not insolvent before or immediately after the prior conveyance of its assets. Allied Prods. Corp. v. Arrow Freightways, Inc., 1986-NMSC-062, 104 N.M. 544, 724 P.2d 752.
Setting aside conveyance of radio license subject to FCC approval. — In an action to set aside the transfer of a radio license as a fraudulent conveyance, the trial court's order that the conveyance be set aside subject to FCC approval did not infringe FCC jurisdiction to make radio license determinations. Beagles v. Espinoza, 1990-NMCA-121, 111 N.M. 206, 803 P.2d 1111.
Court error in determining assets of insolvents. Western Prod. Credit Ass'n v. Kear, 1986-NMSC-055, 104 N.M. 494, 723 P.2d 965.
Law reviews. — For article, "Attachment in New Mexico - Part I," see 1 Nat. Resources J. 303 (1961).
Am. Jur. 2d, A.L.R. and C.J.S. references. — 37 Am. Jur. 2d Fraudulent Conveyances §§ 1, 15 to 18, 21.
Support, conveyance in consideration of, as affected by solvency of grantor, 2 A.L.R. 1449, 23 A.L.R. 584.
Opinion or conclusion of witness as to insolvency, based on examination of books and accounts, 81 A.L.R. 1431.
Valuation of notes and accounts receivable in determining question of insolvency, 133 A.L.R. 1274.
"Going concern" value as factor in determining solvency or insolvency, 158 A.L.R. 968.
Conveyance or transfer in consideration of legal services, rendered or to be rendered, as fraudulent against creditors, 45 A.L.R.2d 500.
37 C.J.S. Fraudulent Conveyances §§ 7, 104 to 106, 110, 140; 68 C.J.S. Partnership §§ 185, 191.