The Second Circuit has held that evidence revealing that the bankrupt's wife's fear of losing their home and threat to leave her husband along with his insolvency at the time of conveyance showed that the transfer was motivated by intent to defraud, delay, or hinder creditors and justified denial of discharge. Rothschild v. Lincoln Rochester Trust Co., 212 F.2d 584, 585 (2d Cir. 1954). The court is of the opinion that the general rule is that a debtor may, in contemplation of bankruptcy, convert his property from nonexempt items into and exempt and maximize those exemptions afforded him under the law of Virginia.
Further, where valuable property has been gratuitously transferred, or transferred for inadequate consideration, a presumption arises that such transfer was accompanied by the actual fraudulent intent necessary to bar a discharge. See Rothschild v. Lincoln Rochester Trust Co., 212 F.2d 584 (2d Cir. 1954); In re Derrick, 288 F. Supp. 964 (E.D.Ark. 1964); In re Bateman, 3 Bankr.L.Rep. (CCH) ¶ 67,963 (8th Cir. 1981); In re Riddle, 8 B.R. 797 (Bankr.Ct.S.D.Fla. 1980); 4 Collier on Bankruptcy, ¶ 727.02[3], n. 7 (15th ed. 1980).
We conclude that New York law offers adequate remedies for Wilk Auslander to enforce its judgment and it is therefore not substantially prejudiced by being denied access to bankruptcy remedies.As a judgment creditor, Wilk Auslander has the right under New York law to execute on Murray’s shares in his apartment and to cause those shares to be sold in a judgment execution sale.See Rothschild v. Lincoln Rochester–Tr. Co. , 212 F.2d 584, 585 (2d Cir. 1954) (per curiam) (collecting cases); In re Waxman , 128 B.R. 49, 51 (Bankr. E.D.N.Y. 1991). However, neither Wilk Auslander nor any third-party purchaser of those shares would have the right to execute on Murray’s wife’s interest in the apartment, to force a partition or sale of the apartment, or to inhabit the apartment.
A purchaser at mortgage foreclosure sale acquired the husband's interest and thus became a tenant in common with the wife, subject only to her right of survivorship. Id. See also Rothschild v. Lincoln Rochester Trust Co., 212 F.2d 584, 585 (2d Cir. 1954) (per curiam) (debtor tenant's interest in tenancy by the entirety liable to be taken on execution); Finnegan v. Humes, 252 App.Div. 385, 299 N.Y.S. 501 (1937), aff'd, 277 N.Y. 682, 14 N.E.2d 389 (1938) (debtor tenant transfers all his rights, including right to present possession, in a tenancy by the entirety to third party upon execution sale to third party). Although a debtor tenant's interest is alienable, the value of that interest is problematical because if the non-debtor tenant survives the debtor, the non-debtor tenant acquires the entire fee and a purchaser takes nothing.
He followed a number of cases holding that the gratuitous transfer of valuable property raises a presumption of the intent necessary to bar discharge. See City National Bank v. Bateman (In re Bateman), 646 F.2d 1220, 1222 (8th Cir. 1981); Rothschild v. Lincoln Rochester Trust Co., 212 F.2d 584, 585 (2d Cir. 1954); 1A COLLIER ON BANKRUPTCY ¶ 14.47 at 1411-12 (14th ed. 1978); cf.
47 (14th ed. 1978), and was cited by both the bankruptcy judge and the district court: "The fact * * * that valuable property has been gratuitously transferred raises a presumption that such transfer was accompanied by the actual fraudulent intent necessary to bar a discharge under clause (4)." See Rothschild v. Lincoln Rochester Trust Co., 212 F.2d 584 (2d Cir. 1954). Further, upon a showing that the act alleged was in fact committed, the burden of rebutting the presumption shifts to the bankrupt.
As far back as 1954, the Second Circuit has held that where a "[h]usband and wife had an estate by the entirety under New York law, ... the husband's interest [was] liable to be taken on execution (subject to her right of survivorship) and hence pass[ed] to the trustee in bankruptcy." Rothschild v. Lincoln Rochester Trust Company, 212 F.2d 584, 585 (2d Cir. 1954) (citations omitted). Federal courts in New York have relied on the Second Circuit's rulings in Persky and Rothschild to hold that a non-liable spouse does not have a legally recognized expectation that property owned as tenants by the entirety would not be subject to a forced sale to satisfy the liable spouse's tax liabilities.
Under New York law, a federal tax lien may attach to property held in a tenancy by the entirety, and this attachment has been held to negate the expectation that such property would not be subject to a forced sale. See U.S. v. Goldstein, 2005 WL 323740 *5 (S.D.N.Y.) (citing Rothschild v. Lincoln Rochester Trust Co., 212 F.2d 584, 585 (2d Cir. 1954)); See also Digiulio, 1997 WL 834820 at *16 (finding that under New York law a non-liable spouse did not have a legally recognized expectation that the property would not be subject to a forced sale) (citing Persky v Community Nat'l Bank Trust Co. Of N.Y., 893 F.2d 15, 19 (2d Cir. 1989) ("it seems plain that the interest of a tenant by the entirety is not exempt from sale and enforcement by execution")). Accordingly, this Court finds that this factor weighs in favor of the government.
In this matter, because the Lake Placid Property is located in New York, the law of that state applies. Under New York law, "the interest of a tenant by the entirety is not exempt from sale and enforcement by execution." In re Persky, 893 F.2d 15, 19 (2d Cir. 1989) (concluding that a debtor's interests "are not exempt from process under New York law" and that "[t]he sale of the entire interest in the tenancy by the entirety is plainly authorized by the statutory language"); see also In re Levenhar, No. 181-11670-21, 1982 Bankr. LEXIS 3075, at *14-15 (Bankr. E.D.N.Y. Oct. 26, 1982) (explaining that "[i]n New York, . . . the interest of a tenant by the entirety is subject to the lien of a judgment and may be sold under execution") (citing Rothschild v. Lincoln Rochester Trust Co., 212 F.2d 584, 585 (2d Cir. 1954)). Because New York law applies to the Lake Placid Property and because New York law provides that real property held in tenancy by the entirety is not exempt from process, the objecting parties met their burden of demonstrating that Prosser was not entitled to an exemption for the Lake Placid Property. Accordingly, the Court finds that the Bankruptcy Division did not abuse its discretion in this respect.
In this matter, because the Lake Placid Property is located in New York, the law of that state applies. Under New York law, "the interest of a tenant by the entirety is not exempt from sale and enforcement by execution." In re Persky, 893 F.2d 15, 19 (2d Cir. 1989) (concluding that a debtor's interests "are not exempt from process under New York law" and that "[t]he sale of the entire interest in the tenancy by the entirety is plainly authorized by the statutory language"); see also In re Levenhar, No. 181-11670-21, 1982 Bankr. LEXIS 3075, at *14-15 (Bankr. E.D.N.Y. Oct. 26, 1982) (explaining that "[i]n New York, . . . the interest of a tenant by the entirety is subject to the lien of a judgment and may be sold under execution") (citing Rothschild v. Lincoln Rochester Trust Co., 212 F.2d 584, 585 (2d Cir. 1954)). Because New York law applies to the Lake Placid Property and because New York law provides that real property held in tenancy by the entirety is not exempt from process, the objecting parties met their burden of demonstrating that Prosser was not entitled to an exemption for the Lake Placid Property. Accordingly, the Court finds that the Bankruptcy Division did not abuse its discretion in this respect.