PRIMARY AND SECONDARY ASSET PROTECTION TOOLS
By: Joe H. Dickerson, CFE, CFI
This week we are going to look at what we at Financial Forensic Services have found to be the four (4) primary ways debtors attempt to protect their assets from judgment creditors. We will then look at the twenty three (23) secondary (other) places or ways we have these judgment debtors also use in their efforts to hide their assets.
For many years corporations were the principal way to protect assets. Next week we will look at the various techniques judgment creditors use to recover assets being held in corporate entities.
Limited partnerships and limited liability companies are favored by many people now with the LLC becoming the preference for many, especially for small and mid-size businesses and some larger entities. If used correctly, it offers many benefits for legitimate investors.
Trusts are frequently used to protect the wealth of individuals and families for the future benefit of heirs and charities. There are two basic forms of trust: revocable or irrevocable. The revocable trust offers no asset protection. Assets held in irrevocable trusts can be reached if it can be proven if those assets were conveyed into the fraudulently irrevocable trust to “hinder, delay, or defraud creditors.” That subject will be addressed again, in detail, in the future issues of this weekly report.
The Secondary Asset Protection Tools are not used as frequently or as obviously as the four primary ones above and are less often pursued for recovery and many are never thought of or considered. This list is not intended to be all inclusive, but it does reflect places and ways where Financial Forensic Services has found hidden assets.
These valuable assets are difficult to find and prove their ownership due to the fact that their is no public records such as: title records, secretary of state files, clerk and recorder records, assessor records, DMV files, etc. that can be researched for documents to prove ownership.
If you believe your judgment debtor is fairly wealthy and probably owns some of this kind of personal property, and if your research has shown that your debtor owns a home, you should determine if the home is financed. If so, we all know monthly payments on a financed home consist of four (4) things: (PITI) principal, interest, taxes, and insurance. Taxes and insurance are escrowed and paid by the lender so the collateral is protected and not lost in case the taxes are not paid or the insurance is not paid and lost in case of a fire. If the lender is paying the insurance premium, then the lender knows the name of the insurance company, the address of the insurance company, and the policy number. Knowing that, you then subpoena the lender and get the name and address of the insurance company and the policy number. With that information, you now subpoena the insurance company for a copy of the policy with all schedules and attachments thereto. Here you get a list of the jewelry, art, furs and other valuable assets – a list you probably cannot get anywhere else and the list that no other judgment creditor has access to! These last two subpoenas and the next one should be obtained by ex parte if possible.
Now take the list of assets you obtained from the insurance company and request that the court issue a writ of execution (or the equivalent) for the recovery of the listed assets as well as all other non-exempt assets including, but not limited to, all electronic communication devices, such as cell phones, computers, iPads, fax machines, copying machines/printers, and the authority to conduct a forensic analysis thereof. Note: I have never been turned down (denied) by the court for this request!
My second favorite place to recover assets is from the debtor’s attorney by serving a writ of garnishment. Remember, the retainer does not belong to the attorney until earned. I recovered $5,000.00 every Monday morning for three (3) weeks. The fourth week the attorney decided he should take his retainer from someone other than his client. We both laughed, shook hands and went on with our case. We ultimately made a 100% recovery. Apply this type of “out-of-the-box” thinking to each step of your judgment enforcement cases and both you and your client will do well.
NEXT WEEK: Piercing the Corporate Veil
(Piercing the asset protection vehicles)
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By: Joe H. Dickerson, CFE
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