I get asked a variation of this question at least once a week. Today’s consultation featured a mother who had quitclaimed half an interest in her home to each of her two sons about 2 years ago. She now needs to file a bankruptcy case. The sons are (rightfully) concerned. Why? Because they didn’t pay anything for the property interests they received.
In bankruptcy, this is known as a potentially “fraudulent transfer” which can be recovered by the Trustee. Of course, the Trustee must be able to specifically prove a few things in order to prevail. Among these are: 1. The transfer in question took place within 2 years prior to filing the bankruptcy case (In California, this is four years per separate California law); 2. The debtor making the transfer did not receive “reasonably equivalent value” for the transfer from the transferee AND was insolvent at the time the transfer was made, or became insolvent as a result. (insolvency is a term defined usually with reference to the Internal Revenue Code). Or if the Trustee can prove that the transfer was done with intent to hinder, delay or defraud a creditor, then that is a separate ground on which the Trustee can prevail.
There are obviously more complexities to this and you can read more about fraudulent transfers on my webpage, but this should give a warning bell to all those who are considering doing this.
Even if done innocently or involuntarily, any such transfers can be recovered–both inside and outside of bankruptcy–and the value received by the transferee (person who received the asset) can be ordered by a court to be returned.