MEMORANDUM OPINION ON COMPLAINT TO AVOID TRANSFERS AND CROSS-CLAIM FOR INDEMNIFICATION AND CONTRIBUTION
I.Introduction
Nearly two years prior to filing her Chapter 7 petition, Dorothy I. Stanley (“Debtor”) transferred her real property to defendant Robert G. Stanley (“Robert”), one of her sons, for less than reasonably equivalent value. Almost a year later, Robert transferred the property to defendant Sherry L. Stanley (“Sherry”), his sister, in exchange for the amount he had invested in the property. Six months later, Sherry transferred the property to a non-family member for valuable consideration. The Chapter 7 trustee, Sara J. Daneman (“Trustee”), seeks to avoid the transfer of the property from the Debtor to Robert (“Transfer”) as a fraudulent transfer and to recover money judgments from Robert and Sherry (collectively, “Defendants”).
To prevail, the Trustee must prove that the Debtor made the Transfer either: (i) with actual intent to hinder, delay or defraud any of her creditors; or (ii) while in a financial condition that would lead to a finding of constructive fraud under state law. As explained below, the Court finds that the evidence does not support either a finding of actual fraud or constructive fraud. The Trustee, therefore, may not avoid the Transfer or obtain a money judgment against the Defendants.
This memorandum opinion constitutes the Court’s findings of fact and conclusions of law. See Fed.R.Civ.P. 52 (made applicable here by Fed. R. Bankr.P. 7052).
II. Jurisdiction
The Court has jurisdiction to hear and determine this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. The Trustee’s fraudulent transfer action is a core proceeding. See 28 U.S.C. § 157(b)(2)(H). In light of the Court’s ruling on the Trustee’s cause of action, Robert’s cross-claim against Sherry for indemnification and contribution is moot, and the Court need not decide whether it has jurisdiction to adjudicate the cross-claim.
III. Background
In October 2003, the Debtor transferred real property located at 803 Rumsey Road, Columbus, Ohio (“Property”) to Robert. On July 23, 2005 (“Petition Date”), the Debtor filed her Chapter 7 petition. On March 12, 2007, the Trustee commenced this adversary proceeding. On October 15, 2007, the Court conducted a trial during which it heard testimony from the *793 Debtor and the Defendants, and admitted exhibits offered by the Trustee, including the deeds by which the Property was transferred. Post-trial briefing was completed on December 10, 2007. Based on the evidence adduced at the trial, the Court makes the following factual findings.
A. The Transfer
The Debtor raised her family, including Robert and Sherry, in a house located on the Property. In 1995, the Debtor entered into a land contract to sell the Property to another son, Jerry Stanley (“Jerry”), for $50,000. Jerry breached the land contract by, in addition to other defaults, allowing back taxes in an amount between $4,000 and $5,000 to accrue on the Property. Trial Transcript (“Tr.”) at 50:3-23. The Debtor commenced eviction proceedings in state court, ultimately resulting in Jerry’s eviction. Tr. at 47:5-13; 51:2-11. In June 2003, Robert, fearing that the county might attempt to seize the Property in a tax sale, paid the back taxes.
On October 3, 2003, the Debtor executed a quit-claim deed by which she transferred to Robert all of her right, title and interest in the Property “in consideration of love and affection.” Trustee’s Exhibit (“Trustee Ex.”) 1. At the time, the Debtor was approaching 65 years of age, in poor health, and living with her aunt in the aunt’s house. In addition, the house located on the Property was in poor condition; its defects included a leaky roof, leaky water pipes and gas lines, mold inside the walls, rotten floors and a furnace in need of repair. Tr. at 37:1-6; 43:24-44:11; 47:23-48:16; 68:12-22. The Debtor and Robert both testified that the purpose of the Transfer was to permit him to rehabilitate the house so that the Debtor could live there. Tr. at 22:21-23 (Robert testified that “my intent was to fix it up and that didn’t happen, so that my mother could live there ...”); Tr. at 50:21-23 (The Debtor testified that “Robert paid the taxes and he was going to — I let him have the house, he was going to fix it up so I could live there.”). Robert purchased building materials for the purpose of rehabilitating the house but did not follow through with the work because, in his words, the Debtor “kind of decided it was taking a little too long, and so she said, ‘Well, just forget about it[.]’ ” Tr. at 44:21-22. According to the Debtor, “I indicated that I didn’t think he was doing anything.” Tr. at 69:11-12.
In the summer of 2004, with the Debt- or’s knowledge, Sherry asked Robert to sell the Property to her. For approximately two weeks, Robert considered Sherry’s proposal. Robert then advised her that, if he were to sell the Property, he would need to receive $5,000, which was the amount of back taxes he had paid in June 2003 plus the approximate cost of the building materials he had purchased. Tr. at 22:11-23:1; 44:25-45:22. Sherry paid the $5,000 in increments. On August 16, 2004, Robert executed a quit-claim deed by which he transferred to Sherry all of his right, title and interest in the Property “in consideration of love and affection.” Trustee Ex. 2. The understanding between Robert and Sherry at the time was that Sherry would rehabilitate the house so that their mother could live there with Sherry and her children. Robert testified as follows:
Q. Why did you deed the property to your sister?
A. She approached me, asking if I would sell her the property ... [a]nd so for about a week and a half, two weeks I thought about it and I just finally said, “Okay. I’ll sell it to you.”
Q. Was the intent in all this to have a place for your mother to live, was that it?
*794 A. Yes.
Q. So was there a discussion that she was going to sell it and buy another house or what, what was the discussion? A. No, no, no discussion to that nature. She told me she had planned to fix it up as well, and then my mother would live there as well as my sister.
Tr. at 22:20-23:11. The Debtor also testified that her understanding of the reason for the transfer to Sherry was that Sherry “was going to try to get financing, and we were all going to live together.” Tr. at 70:11-14. To this end, Sherry contacted at least two lenders to obtain funds to finance the project. Sherry testified that, due to the condition of the house, she was unable to obtain a home equity line of credit to finance the repairs:
Q. And I believe it was your testimony that you, it was your intent in taking the property to rehab it and provide a place for you and your mother to live?
A. Correct.
Q. And why did you not follow through with that?
A. At the time I was working and tried, I talked to a couple of different mortgage places to try to get a mortgage on it so that I could have people come out and do the work and nobody wanted to loan me any money to do that.
Tr. at 37:17-38:3.
Mark D. Wall and Janet Wall subsequently offered Sherry $20,000 for the Property. The Walls were not family members of Sherry, Robert or the Debtor. Sherry knew the Walls because they were her landlords. After another party offered Sherry $25,000, the Walls increased their offer to $40,500. Tr. at 38:19-39:3; 41:13-42:12. At trial, Sherry speculated that the Walls might have been interested in the Property because “it was a very large lot and it was a good size house.” Tr. at 39:22-23. On February 18, 2005, Sherry executed a general warranty deed by which she transferred the Property to the Walls “in consideration of One Dollar ($1.00) and other good and valuable consideration paid.” Trustee Ex. 3. The Walls paid $40,500 for the Property. At closing, Sherry received $38,401.73 after deductions. None of those funds went to Robert or to the Debtor. Tr. at 40:16-19. Instead, Sherry used a portion of the proceeds to make a down payment on another house (other than the one she was renting from the Walls) for which the purchase price was $146,123. She also used a portion of the proceeds to purchase furniture, curtains and window blinds for the new house. When Sherry and her children moved into the house, the Debtor moved in with them on a rent-free basis. As of the date of the trial, the Debtor still lived with Sherry.
B. The Debtor’s Financial Condition at the Time of the Transfer
The Trustee contends that the Debtor was solvent prior to the Transfer but became insolvent as a result of it. In particular, the Trustee argues that the Debtor was insolvent after the Transfer because she generally was not paying her debts as they became due. In light of these arguments, the Court will review the evidence regarding the Debtor’s assets, liabilities and debt payment history as of the date of the Transfer.
1. The Debtor’s Assets
After the Transfer, the Debtor’s only remaining assets were items of personal property. The Debtor testified that she owned the same assets on the Petition Date that she owned at the time of the Transfer and that the value of the assets as of the Petition Date was “roughly” the value listed in her bankruptcy schedules— *795 approximately $6,220. Tr. at 65:2. She testified:
Q. All right and when you filed you listed assets totaling $6,220. Let me read those off to you. You said you had cash on hand of $20. A Huntington National Bank account at $200. Household goods and furnishings valued at $300. Clothing valued at $100. A cocktail ring valued at $400. Term life insurance with no cash value. And a [2002] Hyundai automobile valued at $5,200. And that’s the total of assets you listed. Was that an accurate statement of what you owned at that time? A. Yes. Figuring it roughly at the time, yes.
Q. And is that basically what you owned back when you transferred—
A. Yes.
Q. —your house to your son Robert?
A. Um-hum.
Q. Your assets hadn’t changed much during that period of time?
A. Not really. I don’t have any more furniture than I did, you know, or anything.
Tr. at 64:16-65:12. The Debtor was not questioned about and did not testify regarding the value of the assets at the time of the Transfer.
2. The Debtor’s Liabilities
The evidence showed that the Debtor’s liabilities generally fell into three categories — indebtedness on account of health care services, indebtedness for credit card purchases and indebtedness for the financing of her automobile.
In 2002 — prior to the Transfer — the Debtor underwent a number of medical procedures. Tr. at 57:4-9. At the time, the Debtor was covered by Medicare, but Medicare paid only 80% of her medical bills, and the Debtor was liable for the remaining 20%. The medical providers filed proofs of claim in liquidated amounts. During the trial, counsel for the Trustee questioned the Debtor about these proofs of claim without providing her with copies of them. Nor did counsel for the Trustee offer copies of the proofs of claim as exhibits. The Debtor’s testimony regarding these bills, which she had incurred four years earlier, was not definitive. For example, when asked whether she had paid a $1,030.76 bill that was the subject of a particular proof of claim, the Debtor answered, “[n]ot if you have it there I didn’t[,]” Tr. at 59:10, and “[wjhatever you have there is what I haven’t paid, I didn’t pay.” Tr. at 59:17-18. The Debtor’s testimony showed that, as of the Petition Date, one provider asserted that she owed $1,030.76, for which it filed one proof of claim, and an additional $3,794.10, which is evidenced by a second proof of claim. Tr. at 58-59. In addition, the evidence showed that other health care providers asserted that she owed $8.34 (about which the Debtor testified “[t]hem I owe for radiology if you say so[,]” Tr. at 60:8-9), $164, Tr. at 85:20-22, and $123.36, Tr. at 66:13-67:3. The Trustee failed to elicit testimony or introduce any other evidence regarding whether these amounts were the principal amount of the debts or whether they included interest, late fees or other charges.
The Trustee did not introduce any evidence regarding the amount of the Debt- or’s liability on her credit cards at the time of the Transfer. The Debtor testified that her car payment at the time was $252.83 per month, Tr. at 61:2-62:5, but did not testify about the total amount she owed on the car loan at the time of the Transfer. The Debtor did testify that she owed a small debt to JCPenney that was past due from some time before 1995. The evidence showed that JCPenney filed a proof of claim in the amount of $235.18, but the *796 Debtor stated that she believed the amount to be around $60. Tr. at 67:5-9; 84:25-85:10.
3. The Debtor’s Debt Payment History
As of the date of the Transfer, the Debt- or was paying little or nothing on her debts to her health care providers. She testified that she might have made some payments to one provider, but that if she had, the payments would have been small in amount:
Q. In fact, have you ever paid anything that — on your medical bills that Medicare didn’t pay?
A. I probably have at different times but I don’t remember — I had so much going on, I don’t remember what’s— Q. But you specifically—
A. I was also paying for my medication at the time.
Q. Okay. But you didn’t pay that balance due?
A. That was the secondary part.
Q. Yeah and you didn’t pay that?
A. No.
Q. All right.
A. I may have paid at different times but probably not that much.
Tr. at 57:17-59:2.
The Debtor, however, testified that she was making her car and credit card payments at the time of the Transfer:
Q. Were you, once again if you recall, was it your practice or did you make a habit of paying something on bills as you got them even if you couldn’t pay them in full during that timeframe?
A. I paid my car payment and things, if you’re talking about that timeframe.
Q. Yes.
A. When I was still getting my disability and my Social Security.
Q. And your disability, your private disability, ceased almost a year to the date of the transfer of the property to your son, Robert, correct?
A. Well, let’s see,—
Q. We—
A. —that would be three years ago, so it would have been about 2003.
Q. Okay.
A. 2004,1 don’t know.
Q. So you turned 65 in October of 2004?
A. Right.
Q. And when you turned 65, that’s when your disability, your private disability ceased, is that correct?
A. Yes.
Tr. at 76:22-77:21.
Q. The other — with respect to the other debts that you listed in your schedules, were — did you owe any of those monies back in 2002? The credit cards? I know you had the car payment back then but any other debts, were those still—
A. I may have had the credit cards.
Q. Were you making your current monthly payments on those?
A. Yes.
Q. All right. So you were current on your credit card payments back in — at the time you transferred the property in 2003?
A. Yes, I’m pretty sure.
Q. All right. Did you have any other debts that you were behind on back in 2003 when you—
A. Mostly just the debts that I was behind on at the time were maybe the secondaries on the hospital bill or something.
*797 Q. So the unpaid amount on the bills that weren’t picked up by Medicare? A. Right.
Tr. at 83:20-84:16.
After the Transfer, the Debtor had income of between $300 to $400 per month in Social Security Disability payments and $635 per month in private disability payments. Tr. at 74-75; 81:19-81:25. The Debtor’s private disability insurance payments — which were approximately $635 a month — ended when she turned sixty-five in October 2004. The reduction in the Debtor’s income was partially offset by payments from a retirement plan in the amount of $107 per month that began about the same time her disability payments ended. This occurred approximately one year after the Transfer. A death benefit of approximately $700 per month did not begin until her former husband died in May 2007. Tr. at 78:3-5; 81:19-83:13.
IY. Arguments of the Parties
The Trustee asserts that the Transfer is avoidable as both an actual and constructive fraudulent transfer. With respect to actual fraud, the Trustee argues that the Transfer was a transfer (1) to an insider, (2) of substantially all of the assets of the Debtor, (3) for less than reasonably equivalent value, and (4) that caused the Debtor to become insolvent. The Trustee contends that the existence of these four “badges of fraud” shifts to the Defendants the burden of proving that the Transfer was not fraudulent. As to his constructive fraud claim, the Trustee again argues that the Transfer was for less than reasonably equivalent value and that it caused the Debtor to become insolvent. The Trustee also argues that the Debtor was insolvent under Ohio law in that she generally was not paying her debts as they became due, ie., she was not paying her bills to her medical providers and had not paid a bill to JCPenney. The Trustee also contends that the Debtor was insolvent on a balance-sheet basis:
As shown by her Bankruptcy Schedules, her total liabilities, at the time of filing, were $29,311.17. And, her assets and liabilities were basically the same when she transferred her real estate to her son Robert as when she file[d] Bankruptcy (Transcript pgs 64 & 65). Also, as shown by Plaintiffs Exhibit 4, a net of $38,401.73 was received from the sale of the real estate on February 18, 2005. In other words, before the Debtor gave the real estate to her son Robert, she was solvent, in that she could have paid off all her debt from the proceeds of a sale of the subject real estate. After the transfer, she was insolvent, and eventually filed Bankruptcy.
Trustee’s Post-Trial Br. (“Trustee’s Br.”) (Doc. 29) at 5-6. In addition, the Trustee argues that the Transfer was constructively fraudulent because the Debtor reasonably should have believed that after the Transfer she would incur debts beyond her ability to pay as they became due. According to the Trustee, the Transfer is therefore avoidable under § 544(b)(1) of the Bankruptcy Code and Ohio Revised Code §§ 1336.04 and 1336.05 1 and may be *798 recovered from the Defendants under 11 U.S.C. § 550. The Trustee seeks avoidance and recovery of $33,401.73, which is the net amount received by Sherry in the sale to the Walls minus the $5,000 Robert invested in the Property.
In response, the Defendants argue that the Trustee did not plead actual fraud and that the Court, therefore, should not consider the badges of fraud. But even if the Court does so, they contend that the badges of fraud should not shift the burden of proof to them and do not support a finding of actual fraud. The Defendants point to the fact that the house on the Property was in serious disrepair and that the purpose of the Transfer was not to hide or conceal the Property from the Debtor’s creditors but to rehabilitate the house so the Debtor could live there. They also argue that the evidence regarding the Debtor’s financial condition showed only what her financial condition was as of the Petition Date and that the evidence was insufficient to prove that the Debtor was insolvent when the Transfer occurred nearly two years earlier. The Defendants also assert that the Debtor was paying most of her bills and, therefore, was generally paying her debts as they became due. In addition, they maintain that the Debt- or’s income at the time of the Transfer was sufficient to service any future debt that she might incur and that there was no evidence that the Debtor intended to incur, or believed that she would incur, debts that would be beyond her ability to pay. The Defendants also submit that the Trustee failed to prove the value of the Property at the time of the Transfer and, thus, did not establish the amount that would be recoverable under § 550 if the Court were to find that the Transfer is avoidable. Finally, Sherry argues that, by fulfilling her promise to provide a place for the Debtor to live, she provided reasonably equivalent value for the transfer of the Property to her.
Y. Legal Analysis
A. Section 544(b)(1) of the Bankruptcy Code
Section 544(b)(1) of the Bankruptcy Code provides as follows:
[T]he trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title or that is not allowable only under section 502(e) of this title.
11 U.S.C. § 544(b)(1).
Under § 544(b)(1), “a trustee has the right to avoid any transfer of property of a debtor or any obligation incurred by a debtor that is voidable under applicable law by an unsecured creditor of the debt- or.”
Bash v. Sun Trust Banks, Inc. (In re Ohio Bus. Machines, Inc.),
B. Actual Fraud
In support of her actual fraud cause of action,
3
the Trustee relies on the
*799
provision of Ohio law under which a transfer “is fraudulent as to a creditor, whether the claim of the creditor arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation ... [w]ith actual intent to hinder, delay, or defraud any creditor of the debtor.” Ohio Rev.Code Ann. § 1336.04(A)(1). “Actual intent” may be present whether the transfer was motivated entirely or merely in part by a desire to hinder, delay or defraud creditors.
See Spearing Tool & Mfg. Co. v. Buccaneer Tool & Die Co. (In re Spearing Tool & Mfg. Co.),
“Because proof of actual intent to hinder, delay or defraud creditors may rarely be established by direct evidence, courts infer fraudulent intent from the circumstances surrounding the transfer.”
Schilling v. Heavrin (In re Triple S Rests., Inc.),
(B) In determining actual intent under division (A)(1) of this section, consideration may be given to all relevant factors, including, but not limited to, the following:
(1) Whether the transfer or obligation was to an insider;
(2) Whether the debtor retained possession or control of the property transferred after the transfer;
(3) Whether the transfer or obligation was disclosed or concealed;
(4) Whether before the transfer was made or the obligation was incurred, the debtor had been sued or threatened with suit;
(5) Whether the transfer was of substantially all of the assets of the debtor;
(6) Whether the debtor absconded;
(7) Whether the debtor removed or concealed assets;
(8) Whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
(9) Whether the debtor was insolvent or became insolvent shortly after the trans *800 fer was made or the obligation was incurred;
(10) Whether the' transfer occurred shortly before or shortly after a substantial debt was incurred;
(11) Whether the debtor transferred the essential assets of the business to a lien-holder who transferred the assets to an insider of the debtor.
Ohio Rev.Code Ann. § 1336.04(B).
The existence of a sufficient number of badges of fraud shifts the burden to the defendant to prove the absence of fraudulent intent and to show that there was a legitimate purpose for the transfer. “[I]f there are ‘badges of fraud’ which cast suspicion on the transaction, the burden of proof shifts to the defendant to explain the transaction and show that it was not fraudulent.”
See Triple S Rests.,
There is no hard-and-fast rule regarding the number of badges of fraud that must be present before the burden shifts. “Although the presence of a single badge may only raise the suspicion of debtor’s fraudulent intent, the confluence of several badges can be conclusive evidence of fraudulent intent, absent significantly clear evidence of debtor’s legitimate supervening purpose.”
Gabor,
The evidence adduced at trial established the existence of two badges of fraud. First, the Debtor made the Transfer for less than reasonably equivalent value; she made the Transfer so that Robert could refurbish the house and because Robert had paid the back taxes on the Property. The refurbishing of the house never occurred, and therefore does not constitute value.
See
Ohio Rev.Code Ann. § 1336.03(A) (“[V]alue does not include an unperformed promise made otherwise than in the ordinary course of the business of the promisor to furnish support to the debtor or another person.”). Robert’s payment of the back taxes may count as value, but it was not reasonably equivalent value. “In assessing whether a challenged transfer is supported by reasonably equivalent value, courts generally compare the value of the property transferred with the value of that received in exchange for the transfer.”
Corzin v. Fordu (In re Fordu),
The second badge of fraud present here is that the Debtor transferred the Property to her son, Robert, who is an insider for purpose of the statute.
See
Ohio Rev.Code Ann. § 1336.01(G)(1)(a) (insider of individual debtor includes a relative of the debtor). “Transfers between spouses or between family members are suspect and subject to the strictest scrutiny, particularly when the consideration exchanged appears to be inadequate.”
Harper,
The Defendants testified, as did the Debtor, that the purpose of the Transfer was to facilitate Robert’s rehabilitation of the house so that the Debtor would have a habitable residence. The Trustee did not rebut this testimony, and the Court finds it to be credible. 4 It makes sense for Robert to acquire the Property if he were going to oversee its refurbishing. The fact that Robert purchased building materials (for which Sherry later reimbursed him) bolsters his contention he acquired the Property in order to repair the house. And in the end, even though Robert did not make the repairs, Sherry, through her own transfer of the Property, ultimately provided a place for the Debtor to live.
While Sherry did sell the Property to non-family members for valuable consideration, Robert testified that there were no discussions suggesting that the Debtor’s or Sherry’s purpose all along was to sell the Property outside of the family. Rather, *802 the testimony showed that it was the intent of both the Debtor and Sherry that Sherry would obtain a loan to finance the home repairs. The fact that Sherry approached lenders in an attempt to obtain a loan supports the testimony that this was the purpose of the transfer to Sherry. If the Trustee had presented evidence that the Debtor transferred the Property to Robert, or that Robert transferred it to Sherry with knowledge that the Walls were interested in purchasing the Property, then this might be some evidence of an intent to defraud creditors. The Property, however, was in serious disrepair, and there was no evidence that the Debtor or the Defendants knew at the time of the transfers that there would be a buyer for it nearly two years later. Further, Sherry transferred the Property out of the family only after attempting for nearly six months — ultimately unsuccessfully — to obtain the financing necessary to put it in a safe condition so that the Debtor could live there.
When it became clear that Sherry was unable to finance the repairs and that the Walls were willing to purchase the Property, Sherry could have conveyed the Property back to her mother in exchange for the $5,000 Sherry had paid Robert, and the Debtor then could have been the one who sold the Property to the Walls. Under that scenario, the Debtor would have received the net proceeds of $38,401.73. If the Debtor had then transferred those proceeds to Sherry for the purchase of the new house, the Trustee might have sought to avoid that transfer. The existence of badges of fraud would have shifted the burden to the Defendants to prove that the Debtor did not intend to defraud her creditors and, on those facts, that burden might have been more difficult to meet. But the Court looks to the Debtor’s actual intent at the time of the transfer to Robert in October 2003, not what her intent might have been in a hypothetical situation nearly two years later.
In addition to the evidence of a legitimate purpose for the Transfer, consideration of other factors, including the absence of the other badges of fraud, supports the view that the Debtor did not have any actual intent to defraud her creditors. First, there is no evidence that the Debtor controlled the Property after she transferred it to Robert. The testimony showed that she was aware of and did not object to Robert transferring the Property to Sherry, but there was no evidence that the Debtor had the legal right to force the transfer to Sherry or would have had any right to veto it. Robert’s testimony was that he considered Sherry’s proposal for approximately two weeks and then named the price for the transfer. He is the one who had dominion of the Property at that point.
See Taunt v. Hurtado (In re Hurtado),
Moreover, there is no evidence that the Debtor’s creditors had commenced or threatened to commence a lawsuit against the Debtor or that the Debtor transferred the Property to Robert as a result of any actual or threatened lawsuit. The Debtor incurred most of her debts to her medical providers in 2002 but did not transfer the Property until more than a year later. And the Transfer does not appear to have been a transfer of substantially all of the assets of the Debtor. After the Transfer the Debtor’s assets included her personal property assets, which she valued at approximately $6,220.
Finally, the Debtor testified that at the time of the Transfer she was not contemplating bankruptcy. Tr. at 70:17-20. While this could be viewed as merely self-serving, the fact remains that the Debtor did not file her bankruptcy petition until nearly two years after the Transfer. This further bolsters the Defendants’ claim— which they have demonstrated — that there was a legitimate purpose for the Transfer.
See Shamban v. Prichard (In re Prichard),
Taken together, the facts and circumstances overcome the presumption raised by the badges of fraud.
See Official Unsecured Creditors Comm. of Long Dev., Inc. v. Oak Park Village Ltd. P’ship (In re Long Dev., Inc.),
C. Constructive Fraud
The Trustee also asserts that she is entitled to avoid the Transfer on the basis of constructive fraud. In support of her constructive fraud claim, the Trustee relies on both § 1336.04(A)(2) and § 1336.05 of the Ohio Revised Code.
6
Under these statutory provisions, the purpose of the Transfer and the Debtor’s intent are irrelevant.
See SEC v. Antar,
Proof that the Transfer was made in exchange for less then reasonably equivalent value only gets the Trustee half way. She also must make a showing of the Debtor’s impaired financial condition. Under § 1336.04, the required showing is that the Debtor: (i) “was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction,” Ohio Rev.Code Ann. § 1336.04(A)(2)(a); or (ii) “intended to incur, or believed or reasonably should have believed that [she] would incur, debts beyond [her] ability to pay as they became due.”
Id.
at § 1336.04(A)(2)(b). At trial, the Trustee proved neither. She made no showing that at the time of the Transfer the Debtor was engaged or about to engage in a business or a transaction of any kind, let alone one for which her remaining assets would be unreasonably small. The Trustee, therefore, has not established this element of a constructive fraudulent transfer.
See Manera v. KnotKnown Records, Inc. (In re Jones),
That leaves § 1336.05. Under this provision, a transfer constitutes a constructive fraudulent transfer with respect to the Debtor’s existing creditors (such as her medical providers) if it was made — as the Transfer was — for less than reasonably equivalent value, and if the debtor was insolvent at the time of the transfer or became insolvent as a result of the transfer. A crucial issue, therefore, is which party bears the burden of proof on the insolvency issue under Ohio law. Consistent with the general rule that the plaintiff bears the burden of proof on the elements of a cause of action, many courts in this district, including this Court, have held that the trustee bears the burden of proving the debtor’s insolvency at the time of the transfer.
See Canyon Sys.,
The Trustee contends that the Debtor was solvent at the time of the Transfer but became insolvent as a result of the Transfer. Under Ohio law, a debtor is insolvent if she is insolvent on a balance-sheet basis (ie., her assets exceed her liabilities at a fair valuation) or if she generally is not paying her debts as they become due.
See Esteco,
One approach to demonstrating that the Debtor was insolvent on a balance-sheet basis at the time of the Transfer would have been to establish the value of the Debtor’s assets and the amount of her liabilities at that time. But the Trustee did not make that showing. The Trustee asked the Debtor what she owned at that time, and she testified that she owned the same assets on the Petition Date that she owned when she transferred the Property to Robert. She also testified that the value of those assets as of the Petition Date was $6,220. She did not, however, testify to the value of the assets as of the date of the Transfer.
The Trustee’s evidence regarding the Debtor’s liabilities at the time of the Transfer was equally deficient. The Debt- or testified about the amounts that claimants asserted were due as of the Petition Date, but the Trustee failed to introduce any evidence regarding the actual amount of the liabilities at the time of the Transfer. For example, the Trustee did not address the possibility that the amounts *807 asserted in the providers’ proofs of claim included interest, late fees or other charges that were not owing as of the date of the Transfer. Similarly, the Trustee elicited testimony regarding the amount of the monthly payment on the Debtor’s car loan but introduced no evidence regarding the total amount due on the loan as of the date the Debtor transferred the Property to Robert. Likewise, the Trustee introduced no evidence regarding the amount of the Debtor’s liability on her credit cards at the time of the Transfer.
True, “[ijnsolvency is not always susceptible to direct proof and frequently must be determined by proof of other facts or factors from which the ultimate fact of insolvency on the transfer dates must be inferred or presumed.”
Dakar v. Jackson (In re Jackson),
The Trustee’s retrojection analysis fails for two reasons: because the Debtor’s financial situation changed significantly between the date of the Transfer and the Petition Date (for reasons unrelated to the Transfer) and because the Petition Date is too far removed in time from the date of the Transfer. First, “[w]hen [retrojection] is sought to be invoked, it is essential the trustee be able to show the absence of any substantial or radical changes in the assets or liabilities of the bankrupt between the retrojection dates.”
Id.; see also Parlon v. Claiborne (In re Kaylor Equip. & Rental, Inc.),
Retrojection, however, is not appropriate here given the nearly two-year gap between the Transfer and the Petition Date. “Insolvency determined as of one date may form the basis for the inference that insolvency existed on another date if the dates are relatively close in time and if no significant transactions occurred between the two dates.”
Gold v. Laines (In re Laines),
The Trustee also has failed to carry her burden of proving that the Debt- or was not generally paying her debts as they became due after the Transfer. The evidence did show that the Debtor was not paying her debts to her health care providers and had not paid a debt to JCPenney at that time. The evidence, however, also showed that the Debtor generally was paying her credit card debt and ear payment, which was her largest monthly obligation. On balance, therefore, the Court does not find that the Debtor generally was not paying her debts as they became due. “Evidence that a debtor failed to pay some debts is not sufficient to prove that he is generally not paying his debts and, thus, will not give rise to a presumption that the debtor was insolvent at or near the time of the alleged fraudulent transfer.”
Krol v. Unglaub (In re Unglaub),
VI. Conclusion
For the foregoing reasons, the Court finds that the Trustee is not entitled to judgment. The Court’s decision renders Robert’s cross-claim moot. The Court will enter a separate judgment in accordance with this memorandum opinion.
IT IS SO ORDERED.
Notes
. Under 11 U.S.C. § 548(a)(1), as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), a trustee may avoid fraudulent transfers made on or within two years before the petition date. But in bankruptcy cases — such as the Debtor’s — commenced before the effective date of the relevant BAPCPA amendment, a trustee may use § 548(a)(1) to avoid fraudulent transfers made within one year before the filing of the petition. In this adversary proceeding, the Trustee does not rely on § 548(a)(1), apparently because the initial transfer from the Debtor to Robert was made more than a year prior to the Petition Date.
. The Ohio Uniform Fraudulent Transfer Act is codified at Ohio Rev.Code Ann. §§ 1336.01-1336.11 (West 2008).
. The Defendants argue that the Trustee should be barred from asserting actual fraud because she did not properly plead it in her complaint. The Court need not decide whether the Trustee’s complaint sufficiently stated a claim for actual fraud. Some of the evidence adduced at trial went to the issue of actual fraud, including the badges of fraud. If necessary, the Court could permit the complaint to be amended to conform to the evidence. *799 See Fed.R.Civ.P. 15(b)(1) (made applicable here by Fed. R. Bankr.P. 7015) ("If, at trial, a party objects that evidence is not within the issues raised in the pleadings, the court may permit the pleadings to be amended. The court should freely permit an amendment when doing so will aid in presenting the merits and the objecting party fails to satisfy the court that the evidence would prejudice that party's action or defense on the merits."). Here the Defendants were not prejudiced— they were prepared to testify and did testify fully regarding the circumstances surrounding the transfers of the Property. The Court, therefore, would permit an amendment of the complaint if it were necessary. Given that the Defendants are the prevailing parties, it is not.
. The Trustee states that "[t]here was also testimony, but no documentation or proof (See [Ohio Revised Code] 1335.05) of any binding agreement, that the purpose of the transfers to Robert and to Sherry Stanley were for the purpose of providing a suitable place for their mother, the Debtor, who was permanently disabled, to live.” Trustee’s Br. at 3. The section of the Ohio Revised Code on which the Trustee relies is Ohio's version of the Statute of Frauds. It states in part that "[n]o action shall be brought ... to charge a person ... upon a contract or sale of lands, tenements, or hereditaments, or interest in or concerning them ... unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged therewith. ...” This provision might apply if this were an action against the Defendants to enforce their agreement with the Debtor, but that is not the case. The Statute of Frauds has no bearing on the issue of the Debtor's intent in transferring the Property to Robert.
. In Hurtado, the Sixth Circuit held that the trustee could recover a fraudulent transfer from the debtor’s mother despite the mother's argument that she was a "mere conduit” of the transfer. The court of appeals so held because the mother had control over the property transferred. See id. at 535. ("Barbara Hurtado here was given legal title to the funds.... With that established, Barbara Hurtado had legal authority to do what she liked with the funds.... [S]he points to no legal recourse that the debtors would have had if she had chosen to use the funds to her own benefit. The fact that she did not choose to use the funds in that manner in no way undercuts the fact that she had that ability.”).
. Section 1336.04(A)(2) provides in pertinent part as follows:
(A) A transfer made or an obligation incurred by a debtor is fraudulent as to a creditor, whether the claim of the creditor arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation ...
(2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and if either of the following applies:
(a) The debtor was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction;
(b) The debtor intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due.
Ohio Rev.Code Ann. § 1336.04(A)(2).
Section 1336.05 of the Ohio Revised Code provides as follows:
(A) A transfer made or an obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.
(B) A transfer made or an obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the transfer was made to or the obligation was incurred with respect to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.
Ohio Rev.Code Ann. § 1336.05.