Wealthy — or broke?large mansion

An asset search can help determine when to take action.

A venture capitalist client once wanted to find out whether it was worth suing the CEO of a healthcare startup he had funded which had filed for bankruptcy. We conducted an asset search and found the CEO owned three luxurious homes, as well as several investment properties. But upon deeper inspection, we discovered all of his properties were heavily mortgaged — and another entity was quite far along in obtaining a separate judgment against him. As a result of this information, my client decided not to proceed with his lawsuit.

Does a lawsuit make sense?

Because lawsuits are expensive, when deciding whether to take on a case, even one with a potentially sizeable judgment, attorneys must determine whether the effort is worth the money. Is the plaintiff likely to win — and even if they do, how likely is it they can recover any assets from the defendants?

A proper asset search can answer this critical question, painting a larger picture of a person’s financial situation.

The art of looking poor

Cash-strapped, heavily-leveraged individuals and businesses are often deemed not worth suing, even if they’re viewed as likely to be found at fault. Because of this, debtors want to look poor.

Here’s what a comprehensive asset search will cover, along with the red flags we’ve found over time:

Property. An asset search shows real estate and personal property held in the debtor’s name, individual or jointly with a spouse.

  • What a search can reveal: Any recent transfers, such as property moved to a spouse, partner, business entity or trust with the intent of shielding it from attachment. Sometimes, even a person’s online activities can reveal connections to a place the plaintiff may not have considered. For instance, social media posts made by the debtor or a spouse may point an investigation in the direction of another jurisdiction where the subject does not own property in his name, but owns it through another LLC, potentially making it an attachable asset in a judgment.

Lien search. Property, tax and other liens can affect the ability to collect against a defendant’s assets. A search will include details of current mortgages and Uniform Commercial Code records.

  • What a search can reveal: Dubious debtors who make themselves appear to be cash-strapped. In one case, a client wanted to sue an individual who owned a large home. We discovered the individual had a huge mortgage attached to it — and the bank holding the mortgage was supposedly based in Panama. We found no such bank and we believed the mortgage to be a fake lien, prompting the client to go ahead with the lawsuit.

Additional business connections. The defendant may be connected to corporations, partnerships, LLCs, trusts or other entities whose records can be subpoenaed. An investigation can often identify those entities.

  • What a search can reveal: Shell or parent companies that hold the majority of the company’s assets. One client wanted to sue the owner of a cannabis company for a substantial amount. Initially, we looked into the owner’s assets and found that neither he nor his company really had anything valuable. But we dug a little deeper and found another, previously unknown LLC with the same address as the cannabis company, a similar name, and the same registered agent. The cannabis company was essentially just a brand, while this other LLC actually owned the assets of the company. This information was the impetus for our client to proceed with the suit.

Additional bank accounts. While bank account information itself cannot be disclosed without a subpoena, other information obtained in an asset search can be used to piece together information regarding the existence and whereabouts of these accounts, so that they can be subpoenaed.

Get the whole picture

Cases with large potential judgments require significant investments of a law firm’s time and money, even if the odds look good for a judgment in the plaintiff’s favor. When deciding whether to take on such a case, a comprehensive asset search can be invaluable. It can reveal a supposedly cash-strapped individual as someone with surprisingly deep pockets. It can even show a seemingly wealthy person to be nearly bankrupt, saving the firm untold time and expense.

In either case, having a 360-degree view of your defendant’s financial situation is knowledge you can’t afford to overlook.