The Alec Baldwin Saga: A Case Study

Can Asset Protection Save His Fortune from Manslaughter Charges?¹

---

The once bright future of Alec Baldwin is now in serious peril.  On Friday, January 19, 2024, a New Mexico grand jury indicted the Emmy-award winning actor and director on involuntary manslaughter charges stemming from the October 2021 fatal shooting on the film set of Rust, in which a prop gun held by the actor fired a lethal round, killing cinematographer Halyna Hutchins. This is the second time Baldwin has been criminally charged in the death of Hutchins.  Prosecutors elected to dismiss the original manslaughter charges last year when it was reported that the trigger on the replica Colt .45 he was holding had been modified which made a misfire possible.  They retained the right, however, to recharge the actor, stating “This decision does not absolve Mr. Baldwin of criminal culpability and charges may be refiled.” The new charges came after an independent forensic test concluded that Baldwin would have had to have pulled the trigger for it to fire.

For his part, Baldwin has consistently maintained his innocence claiming that he drew back the hammer on the revolver, but never pulled the trigger. According to Baldwin, the gun simply went off.  Lawyers for Baldwin have criticized the new proceedings stating, “It is unfortunate that a terrible tragedy has been turned into this misguided prosecution.”

Whether or not “misguided,” his lawyers are certainly correct that this was a “terrible tragedy.”  First and foremost, the shooting was catastrophic for the Hutchins family.  But it was also a tragedy for other people on the set that day, not the least of which is Alec Baldwin himself – which is the focus of this article.

Can anyone seriously doubt that Baldwin is not horrified by what happened, or by the fact that he was holding the gun that killed Hutchins? Even if he is acquitted of manslaughter charges, this is something that will haunt Baldwin for the rest of his life.  He can never forget, nor will he ever be allowed to forget, the shooting death of Hutchins.  Just recently, Baldwin was accosted on the streets of New York by protesters who mocked his “tanking” career and shouted profanities yelling “you have no f–king shame.”

It would not be a stretch to say that Baldwin is living a nightmare: personally, professionally, and financially.

Personal Impact of Shooting

On a personal level, Baldwin must now look into the abyss as his day of reckoning approaches, and brace for the ordeal of a criminal trial and the legal flogging he is about to receive from prosecutors as they drag him through his role in the shooting death of Hutchins.  If televised, his ordeal will play out to a national audience with the entire country tuned in. Baldwin has stated on several occasions that “not a day goes by that he does not think about what happened.”  According to pleadings filed by his lawyers in one of the civil lawsuits filed against the actor, Baldwin “has suffered physically and emotionally from the grief caused by these events.”  He can now add to it the additional psychological and emotional stress of the trial that awaits him.  No matter the outcome of the trial, his world has been turned upside down and at 65-years of age his life will never be the same.

Professional Impact of Shooting

On a professional level, Baldwin may find that he is no longer a charmed member of the Hollywood fraternity.  In addition to his alleged mishandling of the weapon, Baldwin is also a producer of the movie and prosecutors are alleging that there was a “pattern of criminal disregard for safety” on the Rust set. The Associated Press reported that seven crew members walked off the set in protest over working conditions just days before the shooting. The LA Times further reported that safety protocols that are standard in the industry, such as gun inspections, were not followed, and quoted one close source who said, “Corners were being cut — and they brought in nonunion people so they could continue shooting.” 

Even if the jury concludes that Baldwin did not actually fire the weapon, as a producer of the movie, he could still be held criminally liable for the unsafe conditions on set that resulted in her death.  But it gets even worse.  Prosecutors are also alleging that Rust Movie Productions, which is now defunct, “obstructed” the ongoing criminal investigation into Hutchins’ death.  According to prosecutors, before the police arrived, the production company had its lawyers on the set questioning witnesses within just “30 to 60 minutes” of the incident.

In April 2022, New Mexico’s Occupational Health and Safety Bureau imposed the maximum fine of $137,000 against Rust Movie Productions and issued a scathing report, citing numerous safety failures including the failure to take corrective action following two other misfires of ammunition on set prior to the fatal shooting.

A conviction would undoubtedly damage Baldwin’s reputation even further, and Hollywood is not exactly known for being a warm, fuzzy, and forgiving place.  Will Baldwin continue to be able to get acting parts, paid endorsements and earn a living in the industry, or will he be radioactive?  It doesn’t look good. 

Financial Impact of Shooting

Financially, Baldwin is clearly under stress.  His primary source of income has always come from acting, and he is on record in a related-party lawsuit stating he has lost numerous opportunities and been fired from multiple jobs because of the Rust shooting and that he has suffered financially.

In addition to the loss of acting income, Baldwin has been named a defendant in more than a half-dozen lawsuits arising out of his fatal shooting of Hutchins – and there may be more to come.

Lawsuit #1.  The first lawsuit against Baldwin and the film’s producers was filed a few weeks after the October 2021 incident by Serge Svetnoy, the gaffer (electrician) on Rust.  He was standing next to Hutchins when she was shot and cradled her in his arms while paramedics worked feverously as she lay dying.  Svetnoy’s suit seeks damages for the physical trauma caused by the blast and for the extreme emotional distress he has suffered.

Lawsuit #2.  A week later, in November 2021, script supervisor Mamie Mitchell filed a second lawsuit against Baldwin and the film’s producers. Mitchell, who was standing near Baldwin when the gun fired, claims she suffered painful ringing in her ears in addition to extreme emotional trauma. According to her lawsuit, Baldwin intentionally “cocked and fired the loaded gun even though the upcoming scene to be filmed did not call for the cocking and firing of a firearm.” In a news conference following the filing of her suit, Mitchell said “This violent tragedy has taken away the joy of my life.” Baldwin tried to have the suit thrown out on the grounds that on-set accidents are the exclusive domain of New Mexico workers compensation system, but a Los Angeles judge denied his motion.

Lawsuit #3.  In February 2022, Cheryln Schaefer, the on-set medic for Rust, filed a lawsuit in which she claims the trauma of the incident has left her unable to work.

Lawsuit #4.  Also in February 2022, a wrongful death action was filed by Halyna Hutchins’ husband, Matthew Hutchins, and their son, Andros, against Baldwin and others who were “responsible for safety on the set” alleging “reckless behavior and cost-cutting” led to her death.  According to the complaint, the defendants “cut corners” and “chose to hire the cheapest crew available,” including “a wholly unqualified armorer,” leading to Hutchins’ death. 

Damages to which the family would be entitled in a case such as this typically include: compensation for  the pain and suffering that Hutchins herself endured in her last moments of life as she lay dying with a gunshot wound to her chest; compensation for the pain and suffering of her husband for the loss of his wife, her love and her companionship; compensation for the pain and suffering of her young son who will now have to grow up without his mother; and compensation for the economic loss of Hutchins’ income as a Hollywood cinematographer over the balance of her career. 

In October 2022, the wrongful death lawsuit was settled for an undisclosed sum. It is not inconceivable, however, in a high-profile case such as this for the settlement to be in the high seven figures.  While it is unknown how much of the settlement was covered by insurance, it is clear that Baldwin was responsible for some portion of it since he was reportedly active in structuring the annuity payout to her son Andros and agreed to make Matthew Hutchins the executive producer on Rust, which Baldwin still plans to complete and release.  It’s also possible that none of the settlement was covered by insurance since most commercial general liability policies contain a “criminal acts exclusion” that voids insurance coverage where injury is the result of intentional or criminal conduct, and if the carrier did pay out, it’s possible they retained a “reservation of rights” that would allow them to “claw-back” any settlement amount actually paid should Baldwin be convicted of manslaughter.

Lawsuit #5.  In November 2022, Baldwin filed his own countersuits against four production members in an effort to “clear his name” and to hold them “accountable for their misconduct.”  All four cross-defendants have denied any culpability.

Lawsuit #6.  In February 2023, three additional crew members who worked on Rust filed suit against Baldwin and the film’s other producers.  The three crew members maintain that they were standing close to Baldwin when his gun went off and claim that they sustained “blast injuries” when the gun suddenly discharged, killing Hutchins and injuring director Joel Souza. The plaintiffs are asking for compensatory and punitive damages.  Their attorney said in a statement that Baldwin repeatedly disregarded safety issues on the set, “endangering the entire cast and crew, tragically killing one, and injuring many others, including our clients.” 

Lawsuit #7.  In February 2023, another lawsuit was filed against Baldwin and the producers on behalf of Halyna Hutchins’ mother, father and sister, who reside in Ukraine where she grew up. The suit seeks damages for these three family members, who relied on Hutchins for financial support and for the loss of an opportunity to migrate to the U.S. from their war-ravaged homeland. 

Other Potential Lawsuits.  In addition to the above-referenced lawsuits in which Baldwin is a defendant, he may yet face others.  One other area of potential litigation risk involves Baldwin’s partners and investors in the Rust movie production. Movies cost millions to produce and millions more to advertise and distribute.  Even a low-budget production such as Rust is a multi-million dollar project.  The original production budget was reportedly $8 million. Baldwin is now in the process of finishing the movie, with principal photography having been recently completed in Montana.  With the death of Hutchins and an intervening production delay of more than two years, the Rust budget has spiraled higher.  The fallout from a criminal conviction could cause Baldwin’s investors and partners to lose their investment in the movie, as well as the profits that were promised.  If the Rust movie goes down in flames, which well it may, investors are notoriously unforgiving. If they were to sue to recoup their losses, they might very well have a good claim against Baldwin for all those millions. 

Litigation Costs.  Finally, whether Baldwin wins or loses these cases, he will still have to pay his teams of lawyers, and legal fees from eight simultaneous legal proceedings will be enormous.

Financial Fallout

Even though Baldwin is worth is an estimated $70,000,000, circumstantial evidence of the extreme financial stress he is now under comes in the form of media reports of his sudden attempt to shed real estate holdings in the wake of the Hutchins shooting. 

It turns out that much of Baldwin’s wealth is tied up in two personal residences he owns – one in NYC and other in the Hamptons.  With the sudden loss of acting income coupled with the massive legal cost of having to simultaneously defend 8 lawsuits that could easily result in a catastrophic judgment, it is not unreasonable to conclude that financial pressure was a motivating factor.  It is estimated that $50 million of Baldwin’s $70 million fortune is tied up in just these two homes. Assuming the remaining $20 million is invested in high-yield income producing investments at current rates of return, it would only generate $1 million per year in income for Baldwin.  With combined NY City, NY State and Federal income tax rates approaching 50%, his post tax income would be $500,000 per year.  So, unless he’s got other sources of income, or substantial movie and TV residuals, or a much larger investment portfolio, Baldwin has a very serious cashflow problem.  In addition to his cashflow problems, capital gains taxes will also take a huge bite out of the net proceeds he receives from the sale of these properties.

Baldwin’s Real Estate Portfolio

According to public sources, Baldwin’s real estate portfolio currently consists of 3 properties: (1) a $20 million+ dollar penthouse in Manhattan’s Greenwich Village which he calls home, (2) a 10-acre $29 million dollar estate in Amagansett, Long Island, and (3) a massive $1.75 million dollar, 55-acre farm in Vermont. 

Post-Rust Real Estate Moves

The Vermont Farmhouse.  Baldwin purchased the Vermont property just four months after the actor fatally shot cinematographer, Halyna Hutchins.  He was first spotted house hunting in October — the same month the shooting took place.

The Hamptons Estate.  Baldwin put his Amagansett property on the market for $29 million in September 2022, just eleven months after the shooting.  He cut the asking price to $22.5 million in late 2023.  Then, in January 2024, he took the unprecedented step of producing a marketing video for the property in which he gives a personal guided tour of his estate.  His motivation?  One factor may be the high carrying cost of the property.  Public records show there is a $7,000,000 mortgage, which would cost him approximately $500,000 per year in mortgage payments, taxes and insurance.

The Greenwich Village Penthouse.  It was reported in February 2022, just four months after the shooting, that Baldwin began quietly shopping his Greenwich Village penthouse.  Baldwin bought this penthouse in 2011 and paid $16 million to combine what were originally six apartments, establishing a huge three-bedroom, four-and-a-half-bath property spanning 4,100 square feet, plus outdoor terraces.  Since it’s off-market, the details aren’t public.  It’s safe to assume, however, that like his Hampton property, the carrying costs on this NYC penthouse are enormous.

Maybe He Just Wanted to Sell

It’s entirely possible that Baldwin simply decided one morning to trade his NYC penthouse and his Hampton’s estate for the quiet life of a gentleman farmer in Vermont.  It’s more likely, however, that he is being forced to shed assets in the wake of the Rust shooting.

Is It Too Late to Shield His Assets from Creditors?

Now that he has been re-indicted and is a defendant in multiple civil lawsuits, can Alec Baldwin sell his luxury properties, change up his asset portfolio and shield his net worth from the claims of creditors?

The publicity surrounding these events has triggered a spirited debate in the media about the viability of asset protection planning when liability is a near certainty.  Several attorneys have commented publicly that, if Alec Baldwin were to transfer proceeds from his real estate sales to an irrevocable trust, such transfers would almost certainly be challenged as fraudulent transfers under state law.

Timing Is Everything… Or Is It?

To better understand the options that someone like Alec Baldwin faces, one must first consider the types of transactions that are subject to scrutiny as fraudulent transfers. We can then turn our attention to transactions that may fall outside the scope of fraudulent transfer statutes.

Types of Voidable Transactions

Our website is chock full of literature on fraudulent transfers, now commonly referred to as “voidable transactions.” Generally, voidable transactions may be categorized in coordination with the Uniform Voidable Transactions Act (“UVTA”) as follows:

• “Actual Intent” Transfers: Described in § 4(a) of the UVTA, this is your classic form of transfer in which “badges of fraud” exhibit an actual intent on the part of the transferor to affirmatively avoid a creditor.  Such transfers are generally voidable as to both present and future creditors.

• “Constructive Fraud” Transfers: Under § 4(b) of the UVTA, even if actual intent is not present, a transfer may be voidable as to both present and future creditors if done without receiving reasonably equivalent value in the exchange and (i) the debtor is about to engage in a business or transaction in which the remaining assets are unreasonably small in relation to such business or transaction, or (ii) the debtor incurs debts that are beyond the debtor’s ability to pay as they come due.

• “Balance Sheet” Transfers: § 5 of the UVTA describes transfers conducted in the presence of an established creditor and which render the debtor insolvent. This category includes payment of a debt to an insider who has reason to know that the debtor is insolvent. Such transfers are voidable by an existing creditor, but not by a future creditor.

In the case of Alec Baldwin, all the Rust plaintiffs would be deemed “existing” creditors under the UVTA. Therefore, any transfer falling within one of these three listed categories could potentially be set aside by those creditors.

Is Selling Real Property a “Voidable Transaction”?

Yes, it can be.  Many people – including lawyers – are surprised to learn that even the mere act of selling an asset (such as real property) for cash may constitute a voidable transaction.  Of course, the devil is in the details, so let’s consider how a sale of real estate may fall within any one of the three categories of voidable transactions.

• Actual Intent Test: If someone like Alec Baldwin sells an asset for cash, and the clear purpose of the transaction is to avoid a creditor, this alone constitutes a voidable transaction under § 4(a) of the UVTA. Bear in mind, though, that the creditor must show evidence of actual intent, which may be difficult to prove in many circumstances.  In the case of Alec Baldwin, selling his homes in New York, and converting real estate to cash is definitely one way to aid in moving one’s assets beyond the reach of creditors. At the same time, Alec Baldwin has reportedly purchased a house in Vermont, so he could argue that there is no such ill intent.

• Constructive Fraud Test: Now we ask whether Alec Baldwin received a reasonably equivalent value in exchange. In the case of selling real estate, he will presumably receive fair market value (i.e., reasonably equivalent value) in exchange for title to the property. Therefore, it is unlikely that Alec Baldwin would run afoul of § 4(b) of the UVTA by selling his real estate for cash.

• Balance Sheet Test: The question under this test is whether, by converting real estate into cash, Alec Baldwin has somehow diminished his ability to pay his creditors. This does not appear to be the case. So, the sale of real property should not be voidable under § 5 of the UVTA.

Unless there is some smoking gun evidence demonstrating ill intent in the sale of his real estate, Alec Baldwin should not have to worry about running afoul of fraudulent transfer laws when selling real estate. What kind of evidence would tend to prove ill intent in this situation? Perhaps an exchange of correspondence with a real estate agent in which he makes statements suggesting actual intent to avoid paying his creditors. Such reported cases exist, though not (to our knowledge) with Alec Baldwin.

Does The Transfer of Real Estate Sales Proceeds Constitute a Voidable Transaction?

We generally conclude that someone like Alec Baldwin does not normally run afoul of the voidable transaction rules when selling real estate. Normal real estate sales to third parties at market prices are excluded under both the Constructive Fraud Test and Balance Sheet Test because the seller has received cash that is equivalent to the value of the real estate transferred. The seller’s net worth has not changed. Absent evidence of an Actual Intent Transfer, a sale alone does not trigger a voidable transaction.

But what about a transfer of the sales proceeds?  Is that vulnerable to a voidable transaction claim? This is where it gets interesting. Our attention turns to the transfer itself, and we must again apply our analysis under each of the three types of voidable transactions to determine whether the transfer is subject to challenge.

Purchase of Replacement Property

Media reports indicate that Alec Baldwin purchased a farm in Vermont around the same time he put his other New York properties on the market.  He did not, however, use sale proceeds from these other properties to complete that purchase.  Therefore, this exception to the fraudulent transfer rule would be inapplicable to the Vermont property transaction.  Even if Baldwin had, however, used proceeds from the sale of one of his properties to purchase a replacement property, that transaction would not necessarily be a fraudulent transfer either because he is merely trading proceeds received from the sale of one property to purchase another. Generally, absent evidence of actual intent to avoid a creditor, the purchase of replacement real property is not a voidable transaction.  Just as with the receipt of cash proceeds from the sale of a house, the purchase of a new house at market price represents an exchange of equivalent value; the buyer’s net worth has not changed. Therefore, neither the Constructive Fraud Test nor the Balance Sheet Test would apply to that purchase.

The problem with purchasing a replacement property, however, is that it can still be seized by Alec Baldwin’s creditors unless a homestead exception applies to the property.

• Purchase of Replacement Property using a Homestead Exemption

What if Alec Baldwin were to use sales proceeds to purchase a replacement property in a state that allows for a homestead exemption? 

A number of states have a law called a homestead exemption that protects all or a portion of the equity in a person’s primary residence from the claims of their creditors.   In New York State, the homestead exemption amount varies from county to county.  In high-cost locations such a New York City, the exemption amount is $300,000 for a married couple.  This means, if a married couple owned a home in NYC and a creditor were to force the sale of that property to satisfy a judgment, the first $300,000 in net sale proceeds would go to the owners and the excess would go to pay the creditors. In the case of Alec Baldwin, the NY homestead exemption would not be of any meaningful help to him.  Were he to purchase a $30 million dollar replacement property, he could still be forced to sell that home to satisfy a judgement and would only receive $300,000 from the judicial sale of that property.  In Vermont, the homestead exemption is $125,000.  Again, not much help to Baldwin. 

Some states, however, have what is known as an “unlimited” homestead exemption, which means that all the equity a person has in their primary residence – 100% – is shielded from the claims of their creditors.  Florida and Texas are perhaps the two most well-known locations that people use to use to shield their wealth from a catastrophic judgment.  A prime example is O.J. Simpson, who purchased a primary residence in Florida to shield his fortune from the claims of the Goldman family when they obtained a $30+ million judgement against him. His new, multi-million dollar Florida estate was untouchable. 

Like O.J. Simpson, Alec Baldwin could shield a large portion of his fortune from his Rust creditors by using proceeds from the sale of his New York homes to purchase a replacement property in Florida and claiming a homestead exemption. To do that, however, Baldwin would have to move to Florida and make it his permanent, primary residence.  Given his well-known political activism, however, that seems unlikely.  Still, it is an option for his family.

• Voidable Transaction Law does not apply to Homestead Exemption

The Supreme Court of Florida in Havoco of America, Ltd., v Hill, 790 So.2d 1018 (Fla. 2001), held that using proceeds from unprotected property to purchase a homestead – even if done with the intent to frustrate a creditor – is not a fraudulent transaction.  In most other states, this would be deemed a “fraudulent conversion of assets” and disallowed. 

As confirmed in Havoco, the homestead property can be purchased at any time, even after a lawsuit has been filed and a judgment entered (provided the judgment has not been recorded in the county before the homestead property is purchased).

• Effect of Bankruptcy

The only limit on the use of Florida’s homestead exemption to protect assets from a judgment-creditor, arises in the case of a bankruptcy filing.  Under the Supremacy Clause, Article VI, Clause 2 of the U.S. Constitution, federal law takes precedence over state law.  Where federal and state law conflict, federal law governs.  One area where this can occur is federal bankruptcy law. 

While Florida law provides that the homestead exemption attaches the second you move into your new home, bankruptcy law says that you will lose that protection if you purchase a home and then file for bankruptcy (or are forced into an involuntary bankruptcy by your creditors).  In bankruptcy, there is a requirement that you must have lived in your homestead for a continuous period of at least forty (40) months prior to filing (i.e., 1,215 days to be more precise) if you want your state homestead exemption to apply.  This amendment to the Bankruptcy Code was adopted in the wake of O.J. Simpson’s purchase of a Florida estate to avoid paying the Goldman’s judgment, which many people viewed as unjust.  

This continuous 40-month period can be a particular problem for an out-of-state expat such as Alec Baldwin should he move to Florida and file for bankruptcy (or be forced by his creditors into an involuntary bankruptcy). This waiting period creates a rather long window of vulnerability for such an important asset.  If he can’t satisfy this 40-month requirement, his Florida residence would not be protected from creditors in bankruptcy.  A transfer of assets to his wife Hilaria followed by a purchase of a Florida homestead, however, might offer a workaround to this problem.

Transfer To Spouse

What if Alec Baldwin chose not to purchase a replacement property?  What if, instead, he chose to transfer the sales proceeds to his wife, Hilaria?

In most states, a spouse has an equitable claim to a portion of proceeds from the sale of marital assets.  If the New York real estate is not held separately by Alec Baldwin himself or held under the terms of a prenuptial agreement in which Hilaria disclaims her interest to the real estate, then she should be entitled to a share of the sales proceeds to the extent of her marital stake (typically 50% of the proceeds).

In our example, though, what if Alec transferred 100% of the sales proceeds to Hilaria?  What then?

• Actual Intent Test: Our example does not indicate an affirmative motive to avoid a creditor. Therefore, the transfer may not be set aside as an Actual Intent Transfer absent evidence of motive.

• Constructive Fraud Test: The Constructive Fraud Transfer rule normally applies at the time that the debtor engages in a business or other activity that gives rise to a liability. In the case of the Rust shooting, the incident giving rise to liability precedes a hypothetical transfer of funds from the sale of his New York properties. Therefore, the Constructive Fraud Transfer rule should not apply if Alec Baldwin were to transfer sales proceeds to his wife.

• Balance Sheet Test: Depending on how the property was originally titled (was it in Alec’s name only, or in both Alec’s and Hilaria’s names as a married couple?), a creditor might cite the Balance Sheet Test as a basis to challenge the transfer if it diminishes Alec Baldwin’s net worth and ability to pay their claim. Assuming for sake of discussion that both Alec Baldwin and Hilaria Baldwin own the real estate 50/50, a transfer of all the proceeds to Hilaria would diminish Alec Baldwin’s net worth by the amount of his 50% marital share in the sales proceeds transferred to his wife.  If Baldwin owned the properties in his own name, then a transfer of proceeds to Hilaria would diminish Alec Baldwin’s net worth by the full amount transferred.

So, we have determined it’s possible an existing creditor may be able to set aside a transfer of Alec Baldwin’s marital share of sales proceeds to his wife.  However, under the UVTA, a future creditor would not be able to make this same challenge unless there is also a finding of actual intent.

Transfer To a Trust

What if Alec Baldwin chose to transfer proceeds from the sale of his New York properties to a domestic trust normally used for estate planning, whether revocable or irrevocable, which could benefit Alec Baldwin himself, or his wife Hilaria, or their children, or any combination of the foregoing?  Alternatively, what if Alec Baldwin chose to transfer proceeds from the sale of his New York properties foreign or even an international asset protection trust? 

• Actual Intent Test: Depending on the type of trust involved, ill intent may be imputed. If the trust is a self-settled spendthrift trust (typically used in asset protection planning), the UVTA will cite this as a badge of fraud and evidence of an Actual Intent Transfer that is voidable.

• Constructive Fraud Test: The Constructive Fraud Transfer rule normally applies at the time that the debtor engages in some business or other activity that gives rise to a liability. In the case of the Rust shooting, the incident giving rise to liability precedes a hypothetical transfer of funds on the sale of the New York real estate. Therefore, the Constructive Fraud Transfer rule should not apply if Alec Baldwin were to transfer sales proceeds in trust.

• Balance Sheet Test: Under the Balance Sheet Test, Alec Baldwin’s net worth would be diminished by a transfer in trust unless he is a beneficiary, in which case his beneficial interest in the trust may be actuarially valued and included on his balance sheet. Accordingly, if the terms of the trust are such that the actuarial value of his beneficial interest is equal to the amount transferred in trust, then there should be no voidable transaction. However, in most cases, the actuarial value of his beneficial interest will be discounted to reflect the fact that Alec Baldwin might not have ready access or the unfettered right to funds transferred in trust. Thus, we would expect his balance sheet to be somewhat diminished as a result of most types of transfers to a trust, which would give rise to a voidable transaction.

Based on the foregoing, it would appear that a transfer to a trust may constitute a voidable transaction under the Actual Intent Transfer rule and/or the Balance Sheet Test. This type of inquiry is fact-specific, meaning that there are legitimate means by which Alec Baldwin could transfer the funds in trust, although in most cases the transfer will run afoul of the Balance Sheet Test.

Transfer To An LLC

What if Alec Baldwin decided to transfer the sale proceeds to a newly-formed limited liability company? Let’s assume further that both he and his wife, Hilaria, each transfer their marital shares of the sales proceeds to the LLC in exchange for proportional (50/50) interests in the LLC.  Is this a voidable transaction?

• Actual Intent Test: UVTA § 4 Comment 8 tells us that a transfer of assets to capitalize a newly-formed LLC is not per se voidable. According to the Uniform Law Commission, a state legislature – by enacting a comprehensive LLC law – must anticipate that the LLC will be used in “ordinary circumstances” for asset protection, such as when a group of entrepreneurs organize and capitalize a new LLC at a time when they do not anticipate personal liability or financial distress. The negative implication in the commentary is that if those same entrepreneurs were to reorganize an existing business as an LLC under a cloud of personal liability or financial distress, the reorganization may be considered a “badge of fraud” under Section 4(a)(1). This then shifts the inquiry onto the motive behind the formation of the LLC: Was it to achieve some legitimate business goal, such as more efficient wealth planning or to facilitate a meaningful investment? Or was it organized strictly to make it difficult for a shooting victim’s estate to recover on their judgment?

• Constructive Fraud Test: The Constructive Fraud Transfer rule normally applies at the time that the debtor engages in a business or other activity that gives rise to a liability. In the case of the Rust shooting, the incident giving rise to liability precedes a hypothetical transfer of funds from the sale of Baldwin’s New York real estate. Therefore, the Constructive Fraud Transfer rule should not apply if Alec and Hilaria Baldwin were to transfer sales proceeds into an LLC.

• Balance Sheet Test: Under the Balance Sheet Test, the Baldwins would arguably not see their net worth diminished by a transfer of funds into an LLC. After all, their net worth statement would show a line entry for sales proceeds replaced with a line entry for an LLC capital account of equal balance. However, a creditor could argue that the LLC capital account balance is not the same as the value of the LLC membership interest itself.  Most business valuation advisors will typically assign a substantial discount to an LLC membership interest, reflecting the fact that the interest is not as liquid as cash. Oft times, management rights are severed from ownership, such that an LLC member is unable to direct the use of LLC funds or command a distribution, warranting a further discount in value. So, if effectively challenged by creditor, a transfer of funds to an LLC could result in a voidable transaction under the Balance Sheet Test.

Our analysis suggests that a transfer of the sales proceeds into an LLC could be subject to challenge under the Actual Intent Test if there is insufficient support for a good faith motive behind forming the LLC.  Further, a sophisticated creditor could try to challenge the transfer under the Balance Sheet Test, arguing that the LLC membership interest is worth substantially less than cash in the bank.

Conclusion

Selling real estate in the wake of a liability event (such as the Rust shooting), does not in and of itself give rise to a voidable transaction. We have analyzed four possible ways that Alec Baldwin, alone or in conjunction with his spouse, Hilaria, could transfer the sale proceeds: (i) to his spouse, (ii) to a trust, (iii) to an LLC, or (iv) to a homestead exempted replacement property.  In each of these four types of transfer, we cite potential vulnerabilities.

Any transfer to Hilaria that decreases Alec’s net worth, may constitute a voidable transaction under the Balance Sheet Test if he cannot pay the judgments.  If, however, Hilaria is on title to the real estate or to the extent she is legally entitled to a marital share of sales proceeds, her share should escape the reach of voidable transaction rules.

Alternatively, if sales proceeds are transferred to a trust which leaves Baldwin unable to pay the judgments entered against him, a creditor might be able to rely on either the Actual Intent Test or the Balance Sheet Test to set aside those transfers. This would limit the availability of certain types of trusts, such as a domestic or international asset protection trust, for use in holding those proceeds.

Use of an LLC may be a better solution than a transfer to a trust because transfers to an LLC are not per se voidable under the Actual Intent Test, and the receipt of an interest in the LLC in exchange for a contribution to its capital may pass muster under the Balance Sheet Test.

Finally, a purchase of a homestead exempt property in a state such as Florida may be a viable solution to the Baldwin’s judgment-creditors, particularly if Hilaria is entitled as a matter of law to a share of the sales proceeds used to buy the replacement property. 

Alec Baldwin and his wife would be well served to discuss with their lawyers the extent to which Hilaria can “take her chips off the table” by receiving her share of the sales proceeds separately from Alec Baldwin.  Likewise, Alec Baldwin and his wife may want to consider the use of an LLC in lieu of a trust, where possible, to hold any excess sales proceeds pending settlement of his Rust lawsuits.

Beyond the Baldwin Saga itself, the most important takeaway for the reader – what the Baldwin case highlights – is the importance of asset protection planning.  Asset protection must occur well in advance of an adverse event if it is to be effective.  If Baldwin had created a plan and moved his assets out his personal name before the Rust shooting, much of his fortune would now be shielded from the claims of his creditors.  At a minimum, Alec Baldwin would be in a much stronger position to negotiate a favorable settlement with each of his creditors – which should be the objective of sound asset protection planning.

Most clients are “shell-shocked” when they walk into our offices seeking asset protection guidance.  Like Baldwin, never in their wildest dreams did they ever believe they would be named a defendant in a catastrophic lawsuit that puts their entire fortune – their life’s work – at risk.  Most people don’t perceive the need for asset protection because they don’t believe they will ever be sued.  Their fatal error, what they fail to grasp, is the true nature of our legal system which often imposes liability – sometimes catastrophic liability – for events over which they have little control.  If you don’t believe this is true – ask Alec Baldwin.

To Discuss a Confidential Client Matter or Refer a Case,

Click Here to Schedule a Complimentary Conference Call

---

---

1. All information and analysis contained in this article is based solely upon published media reports and public records.  Mr. Baldwin has not been consulted as to the accuracy of the content hereof, and no information has been provided by either Mr. Baldwin or his advisors. ↩︎