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Buried Treasures Your Clients Don’t Disclose

By Cathy Moran, Esq. Filed Under: Bankruptcy Practice

 

I had spent at least six hours with the clients over several months, strategizing about extracting them personally from a cratering business situation, when he said, “Oh, I haven’t told you about…”

Others at the meeting said my eyes popped and I’m sure my face fell.

He owned another business corporation, which had assets, filed tax returns, and stood utterly apart from the holdings we’d been dealing with.

Now, what possessed him to overlook this entity over such a protracted period of time I cannot say.  Stress perhaps.  Other issues threatened to bite, while this corporation was perhaps an opportunity without (yet) troubles.

But it fed into a theme in my professional life last week: unexpected assets.

Another client in a second or third meeting last week came round to owning up to title to the corporation’s domain names, some trade marked intellectual property,  and a potentially valuable customer list.

So, the call today is to keep digging as you look for assets.

Business wrinkles

The usual suspects, if you will, are business people, particularly if they have incorporated a business once operated as a proprietorship.  Assets bought by the individual frequently don’t get transferred to the business entity.  Or, for tax purposes, they create a separate entity to lease some asset or provide some service to the business.

When the business is a separate legal entity, it often owes the shareholders for loans, funds advanced, use of individual assets.

Wait, wait, there’s more

But it’s not just business folk who hold unexpected assets. At the Northern California Bankruptcy Forum, Folsom bankruptcy attorney Gary Gale presented a confidence-shattering list of things to ask about not in my current client patter.

And another presenter, who works for trustees, talked about accessing Google Street View and Google Maps to see what was visible on the debtor’s property.  He reported finding tractors, multiple unlisted vehicles, livestock, and outbuildings containing who-knows-what.

Get better digging implements

If we assume that it’s inattention or distraction, not the desire to deceive, that leads clients to omit stuff, then we have to become good listeners and linguists.

Listen for the clues to activities or locations not yet mentioned.  Scour the tax return for depreciation on things you haven’t heard about, the paystub for deductions you can’t identify.

Widen your vocabulary.  My friend Charlotte bankruptcy attorney Susanne Robicsek memorably tells about asking a client if they had a couch in their living room.  No, the client replies.  A davenport?  No, again.  A sofa?  Oh, yes, we’ve got a sofa.

So, don’t take “no” as the final word.

Less than obvious assets

Let’s start a list of assets that may elude us:

  1. Accrued vacation pay
  2. Paypal accounts
  3. Insurance claims
  4. Class action membership
  5. Health savings accounts
  6. Liquor licenses
  7. Timeshares or vacation club points
  8. Claims for as yet unreimbursed business expenses
  9. Domain names and  websites
  10. Trade marks or trade secrets
  11. Book royalties
  12. Renewal commissions
  13. Realtor commissions on pending transactions
  14. Loans made to closely held businesses
  15. Vested rights in trusts and estates
  16. Stock or options in companies not (yet) public
  17. Business leases in the individual’s name
  18. Season tickets
  19. Airline tickets or paid for vacations
  20. Security deposits for utilities or rentals
  21. Legal claims not yet filed

Keep digging.  There are undoubtedly more.

 Image courtesy of Mary MacTavish.

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Filed Under: Bankruptcy Practice

Comments

  1. Malcolm Ruthven says

    April 2, 2012 at 4:37 pm

    Very timely. At a final-review-and-sign meeting last week, as I asked about current bank account balances, my client added that she had a paycheck at home that she hadn’t deposited.

  2. Cathy says

    April 2, 2012 at 4:42 pm

    I ask about cash under the mattress (The Bank of Serta). 

    I also ask about family jewelry which some immigrant cultures don’t see as assets of the present possessor, but as belonging the family, and succeeding generations.

  3. John Fox says

    April 2, 2012 at 5:24 pm

    I had some unusual ones last week too:  (1) a lease in a rent-controlled
    apartment in San Francisco and (2) a lease for a space at a mobile home park.

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