Asset protection: Three signposts

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“I’m worried about my creditors. Can I transfer my half of the house to my spouse?”

Lawyers and accountants are often asked for advice on how their clients can protect their assets from creditors. Unfortunately, where asset protection or “creditor-proofing” is concerned, there are often no clear out-of-bounds lines between what is allowed and what is not. Where a transaction has the effect of sheltering assets from creditors, a maze of provincial and federal statutes, including the Fraudulent Conveyance Act, the Fraudulent Preference Act, and the Bankruptcy and Insolvency Act, may potentially apply to render such a transaction illegal, depending on the circumstances. Navigating this maze can be challenging.

In reality, the same themes recur in most of these statutes and in most of the cases considering these statutes. For the most part, the operation of these laws can be understood through the application of three guiding factors.

The most subjective of these factors, but in many circumstances the most important, is the INTENT of the transferor. In attacks under these anti-sheltering statutes, it is usually essential to show that the transaction was entered into by the transferor with intent to prejudice the position of creditors.

Intent is usually inferred from circumstantial evidence, such as secrecy, or back-dated documents. So, where a given transaction may be justified for some other purpose, other than sheltering of assets from the attacks of creditors, the odds of protecting the transaction are improved.

A second recurring factor in attacking a transaction is the INSOLVENCY of the transferor. For example, no attack can be made under the provincial Fraudulent Preference Act unless it can be shown that the transferor was insolvent, or knew that he or she was on the eve of insolvency, at the time of the transaction. Insolvency of the transferor is also important under the anti-sheltering provisions in the Bankruptcy and Insolvency Act.

As well as being a requirement of some anti-sheltering statutes, insolvency is also important when considering intent. If someone is insolvent at the time of the impugned transaction, this can be seen as indirect evidence of an intent to prejudice creditors.

The third factor is TIMING. Some of these anti-sheltering statutes apply only to transactions which have taken place within a set time period. Each of the remedies available under the Bankruptcy and Insolvency Act take this “limitation period” approach. A payment which would otherwise be attackable under the fraudulent preference provisions of the Bankruptcy and Insolvency Act, for example, will be beyond attack if it took place one day earlier than three months prior to the bankruptcy of the person who made the payment (or one year prior in the case of a non-arm’s-length transaction).

Timing is also important in a more general aspect. As a practical matter, the longer the time period which transpires between a given transaction and some creditor’s claim, the less likely it is that a successful attack on the transaction will be mounted. The necessary intent to prejudice is harder to infer when the transaction happened years before any problems with creditors arose.


  • If you are presently insolvent, there is usually little that can be done to shelter assets from creditors.
  • Transactions entered into for some reason other than asset protection, which happen to also confer an asset-sheltering benefit, are more likely to withstand scrutiny.

• The sooner an asset-protection transaction is put into place, the more likely it is that it will withstand or avoid altogether later attack by creditors. 

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