When family law judgments meet bankruptcy court

Family law practitioners routinely encounter litigants who go to extraordinary lengths to avoid financial obligations imposed by judgment. From fraudulent transfers and strategic bankruptcies to hidden assets, sham entities and manipulated income streams, enforcement proceedings increasingly resemble sophisticated financial investigations rather than traditional family law disputes. This article provides family law attorneys with actionable strategies to protect judgments, preserve leverage and position clients for successful enforcement.

Legitimate asset protection planning or fraudulent maneuvering?

There is no shortage of creative, and perhaps at times "shady," lengths to which litigants will go to shield assets, recharacterize property, manipulate marital agreements or otherwise attempt to avoid financial obligations arising from family law disputes and judgments. Cases illustrating the variety of mechanisms parties have attempted to use include those below.  

In Mejia v. Reed, 31 Cal.4th. 657 (Cal. 2003), a husband and his wife entered into a marital settlement agreement (MSA) by which husband transferred his interest in jointly held real property to his wife in exchange for transfer of her interest in his medical practice. A third party with whom husband had a child challenged the MSA as a fraudulent transfer under the California Uniform Fraudulent Transfer Act (UFTA), California Civil Code § 3439 et seq., claiming that the division of property was intended to hinder collection of future child support. She filed an action to obtain a lien against the real property. The California Supreme Court held that the UFTA applied to marital settlement agreements: "When the court divides marital property in the absence of an agreement by the parties, it must divide the property equally, which provides some protection for a creditor of one spouse only.  In view of this overall policy of protecting creditors, it is unlikely that the Legislature intended to grant married couples a one-time-only opportunity to defraud creditors by including the fraudulent transfer in an MSA." Id. at 668.

In Wolkowitz v. Beverly (In re Beverly), 374 B.R. 221 (B.A.P. 9th Cir. 2007), affirmed in part and dismissed in part, 551 F.3d 1092 (9th Cir. 2008), a husband, anticipating a large judgment against community property, entered into an MSA with his spouse in their pending divorce pursuant to which he assumed the debt but stripped himself of assets to pay the debt--transferring his interest in $1 million of nonexempt funds in exchange for his spouse's interest in his $1 million exempt retirement fund. In the husband's subsequent bankruptcy, the chapter 7 trustee sued him and his former spouse to avoid the transfer of his share of the nonexempt funds transferred through the MSA. The Bankruptcy Appellate Panel held that the transfer was avoidable as an actual fraudulent transfer under the UFTA, which was affirmed on appeal.

Berman v. Berman (In re Marriage of Berman), 15 Cal. App.5th 914 (2017), involved a post-dissolution proceeding in which, after the husband retired and transferred his income-producing asset (business) to his current wife for no consideration pursuant to a transmutation agreement, he filed a request for an order terminating further support obligations to his former spouse. The trial court found that the husband had divested himself of his business in bad faith to avoid his spousal support obligations and ruled that business income could continue to be imputed to him for purposes, which was affirmed on appeal.

In Strum v. Moyer, 32 Cal. App.5th 299 (2019), the judgment creditor filed an action under the UFTA against the judgment debtor and his wife, who were married after the creditor had obtained judgment and who signed a premarital agreement providing that each spouse's earnings and income, and any property acquired during the marriage by each spouse, would be that spouse's separate property. The judgment creditor sought to set aside the alleged transfer of the judgment debtor's community property interest in his wife's earnings and income. As a matter of first impression, the court held that the UFTA can apply to premarital agreements so providing and stated: "The policy considerations in favor of applicability of the UFTA are especially strong in this case, where the agreement provided that all earnings and income, and property acquired from those earnings and income, dating back to the date of the marriage will become community property when certain premarital debts are no longer enforceable, and where the agreement allows the debtor-spouse joint access to the nondebtor-spouse's earnings and income that are deposited in a joint account." Id. at 568. Application of the UFTA in any case depends on whether there is actual or constructive fraud, a factual issue that was not before the court. Id.

In Stradtmueller v. Sarkisian, 2025 WL 1370819 (S.D. Cal. 2025), the Chapter 7 trustee filed suit on behalf of the bankruptcy estate of the judgment creditor against the judgment debtor husband and his wife, alleging that they entered into post marital transmutation agreement to evade creditors and asserting, among other claims, cause of action to avoid and recovery of fraudulent transfers under the California Uniform Voidable Transactions Act (UVTA), formerly known as the UFTA. The martial transmutation agreement provided that all property owned by either spouse on the date of marriage and additional property that came to either of them from any source during the marriage from the effective date of the agreement forward shall be and remain their respective separate property, except as otherwise provided in the agreement. In addition, the agreement provided that any community or jointly held property of the parties then in existence shall be transmuted into separate property of either spouse, such that on the agreement's effective date, there is no community property. The court denied the Chapter 7 trustee's summary judgment motion as genuine dispute of material fact existed as to whether defendants entered into the transmutation agreement with the actual intent to hinder, delay or defraud.

Practical guidance

Practical guidance for family law practitioners on steps they can take proactively when drafting agreements, structuring settlements or litigating cases where asset-shielding concerns are present includes the following.

With respect to transmutation agreements, avoid actual fraud in structuring the agreements; document consideration being exchanged between spouses, including release of claims and other value given, and other facts to evidence legitimate asset protection planning rather than voidable maneuvering; and include indemnification and hold harmless provisions for joint debts assigned to the other spouse in planning for potential disputes and creditor or bankruptcy trustee scrutiny.

With respect to "enforcement proceedings," consider, among other potentially applicable law, including family law, the UVTA, which provides a variety of tools to assist creditors seeking payment from debtors who evade collection. These tools include voiding transfers of assets, attaching assets, employing equitable remedies such as injunctive relief or receiverships, and any other relief the circumstances may require, depending on the posture of the case. 

Recognize that enforcing judgments, including domestic support obligations and property division debts, may involve the bankruptcy court and so family law practitioners should monitor any bankruptcy proceedings and work with bankruptcy counsel to devise an informed strategy and coordinated action to protect client creditors or spouses should bankruptcy come into play.

Conclusion

While litigants may become creative, both family law and bankruptcy and civil remedies still provide practitioners and courts with meaningful tools to address bad-faith conduct, unwind improper transfers or agreements and protect creditors and spouses. In that sense, bankruptcy becomes part of the broader remedial framework rather than necessarily the centerpiece of every example.