The story of Mike and Linda Mastro is like a movie: real estate magnate turned debtor in bankruptcy, turned fugitive on the lam (*Mastro has not been indicted, so it may be a stretch to call him a fugitive). And things are just heating up. Jim Rigby, trustee in the Mastro bankruptcy, along with two other creditors are forcing Tom Hazelrigg III into involuntary bankruptcy. Hazelrigg is pictured left working out in his Bellevue penthouse condo (this is the only Hazelrigg picture we know of). Hazelrigg allegedly owes Mike Mastro – and now Jim Rigby – millions. It gets better: Hazelrigg moved to New Mexico (or claims he did anyway), and is seeking to dismiss the Washington-based bankruptcy based on improper venue. Hazelrigg’s objection is here. He also claims that he is medically incapable of leaving New Mexico. (There is no sworn affidavit or declaration accompanying the medical bills he attaches to the declaration in support of his objection). TEP has experience chasing after Tom Hazelrigg and can say this: Nobody is better at hiding assets – and himself – than Tom Hazelrigg III. Nobody.
The New York Times is reporting that Joe Paterno deeded his residence to his wife, as her sole and separate estate. (Check out the home on Zillow by clicking here.) Pundits are speculating this is a move to protect his assets in case he is sued. Paterno’s lawyers on the other hand are claiming it is a part of a “multiyear estate planning program,” and the transfer “was simply one element of that plan.” Who’s correct?
So which is it? Estate planning or asset protection? It is probably both. Under the Uniform Fraudulent Transfer Act, as enacted in Washington State, giving away one’s assets as a means of playing a pauper in the face of an expensive lawsuit does not work, even when the assets are given to a spouse (talk to Mike Mastro about that). But this is Pennsylvania.
Pennsylvania is a little different. In Pennsylvania, assets jointly held by spouses are generally protected from the creditors of one spouse. (In Washington, one spouse’s separate property is first liable, and then his share of community property if the judgment is not satisfied first by separate property. See DeElche v. Jacobsen, 95 Wn.2d 237, 622 P.2d 835 (1980)). So in this case, Joe’s house was probably already well protected. But, what if Joe Paterno’s wife were to pass away? Without some additional planning, this could result in Joe inheriting the home from his wife, ergo, it is back in Joe’s name, and now Joe’s creditors can pursue it (assuming there is an unsatisfied judgment against him). By deeding the home to his wife as her sole and separate property, if she passes away first, the home will pass to the beneficiaries named in her Will rather than to Joe. The odds are that Joe’s wife has a provision in her Will that allows Joe a life estate in the home, with its remainder to vest in the kids.
In any event, by deeding the house to his wife, the ultimate result is that creditors will have more difficulty recovering it from Joe, if it can be done at all, which gives him leverage in negotiating a settlement with whoever is about to sue him.
Forbes.com recently posted this article detailing the bankruptcy trustee’s fraudulent conveyance claims in the Michael Mastro bankruptcy. The takeaway from the article is this: There is no magic pill once you’re in trouble with creditors.
Who is Mike Mastro? Michael R. Mastro was a Seattle-based real estate developer and hard money lender. After real estate dried up in 2008, so did Mastro’s cash flow. He could not make payments to his lenders (who were in essence fronting the money that he lent to his borrowers), and they forced him into bankruptcy. Just before things got bad, Mastro and his wife madly moved assets around, trying to hide them from creditors. Continue reading