In Galaz, et al v. Galaz, et al, an appeal argued before the United States Court of Appeals for the Fifth Circuit, Debtor filed an adversary proceeding against her ex-husband in bankruptcy court. As your Chapter 13 bankruptcy attorney in Birmingham can explain, an adversary proceeding generally involves a petition filed by a potential creditor to challenge the discharge of an asset, or another aspect of another’s bankruptcy case.
In Galaz, Debtor filed a petition that asserted her ex-husband had fraudulently transferred the assets of a company in which she had an interest to a LLC owned by his father. Her ex-husband and a music producer founded the company for the purpose of collecting royalties for a now disbanded funk group.
Even though the company was no longer generating a profit, as part of their divorce settlement, Debtor’s ex-husband transferred half of his 50 percent interest in the company to Debtor. Due to the fact that Debtor’s ex-husband did not receive written approval from his business partner, as per the operating agreement, Debtor received a 25 percent interest in the company with no right to participate or vote on company affairs.
After the divorce, and without the consent of either Debtor or his business partner, her ex-husband assigned all of the companies to a company that did not exist. After doing this, he assisted his father in filing the necessary documents to form a company of the same name, to which he transferred the royalty rights. At this point, the music from the old punk rock group became commercially successful and millions of dollars of royalties were paid to this newly created LLC. Neither Debtor nor her ex-husband’s business partner received any money from the sales of the band’s music.
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