If properly conducted by a credible asset investigator, an asset search is a valuable tool in both pre and post litigation. As an example, it’s not an uncommon situation when an Attorney has a severely injured client, and the liable party’s insurance limits are too low to cover the damages. An asset search can help determine if the attorney should seek those additional assets to satisfy the damages or settle for policy limits. One must also consider the duties an attorney has to inform clients that they may be entitled to more than just what insurance may pay. Injuries are only one example. Lawsuits can be expensive, and it’s worth an asset search to determine if it would be worthwhile, and doing a pre-litigation search of a soon to be ex-spouse can determine if assets have been hidden in anticipation of divorce are other examples.
Asset searches and due diligence
The personal injury example above is likely the most common use of an asset search. An attorney must use due diligence when representing his clients to discover if the liable party has assets that should be pursued to make their client whole should insurance coverage be insufficient. A failure to inform a client of their right to search for and pursue other assets could lead to potential malpractice exposure. An asset investigation should be, at the very least, offered to the client and if the client refuses then the attorney has still performed their due diligence.
Divorce is an excellent example of when a pre-litigation asset search can be invaluable given that the discovery process is the most crucial part of a divorce case. A prudent attorney will make asset searches a standard part of their discovery process knowing that where they look and what they ask in interrogatories, document requests, and depositions could have a significant impact on the ability of their client to care for themselves after the divorce. A thorough asset investigation can verify financial statements and uncover assets that may have been hidden by various methods.
Debt collection is another scenario where an asset search before filing suit is highly beneficial. Discovery typically doesn’t occur until well into the case in most situations so knowing the defendant’s assets in advance can allow an attorney to tie up or seize assets from the beginning giving them a better position at the bargaining table. On the other hand, it will enable the creditor to see if it’s even worth pursuing a debtor by laying out their assets and liabilities before the suit is filed.
A pre-litigation asset investigation can determine if litigation is worthwhile
A lawsuit can take a great deal of time and preparation. The last thing anyone wants is to invest a significant amount of money and time only to find the party you are suing has nothing to sue for, or they have such an impressive portfolio of debt that you will be waiting in a long line with little chance to recover.
A proper investigation can uncover assets such as cars, boats, planes, homes, trusts, shell companies, investments, and retirement accounts. They can also uncover liabilities such as bankruptcies, judgments, tax liens, and other civil litigation. In either case, you will know if a suit is worth the time and money to pursue.
Pre-litigation asset searches protect against the fraudulent transfer of assets.
Having an asset investigation done before litigation has the benefit of a time-stamped snapshot of the assets, so if, when the suit is filed, those assets are transferred to other parties they can be flagged as fraudulent and potentially unwound as part of the judgment.
Asset searches during litigation
Insight into the other party’s financial status, including both assets and liabilities, can be used as great leverage in settlement negotiations. Setting an appropriate demand and then evaluating counter offers depends on the other party’s ability to pay. Pleading poverty throughout the process is a common tactic, and it’s beneficial to know if their claim to poverty is legitimate, or a misrepresentation to reach a lower settlement amount.
If an asset search was completed pre-litigation, another search during litigation would now show the potential fraudulent transfers discussed earlier.
Other ways asset investigations can help attorneys
An asset search can provide leverage for child support collection. Many divorcees must determine how they will handle child support. State and federal law require parents, even after divorce, to financially support their children. The child support amount is determined by the court and paid by the noncustodial parent until the child is of age. When this doesn’t happen as planned and there is a reason to believe the parent is avoiding the payments, an asset search provides similar benefits as to debt collectors.
When a business consults with an attorney prior to making investments, the attorney must do their due diligence by making sure they are well informed. The attorney has the responsibility to examine the financial health and potential of the other involved entities before their client adds a partner, hires a high-level employee, negotiates a merger, or begins a new business.
Are knowing about significant assets enough?
Perhaps you are already confident the party you intend to sue has significant assets. Before you give your attorney the go-ahead, you need to be aware that winning a considerable judgment doesn’t mean you will ever collect a dime. An asset investigation can also help determine if the assets are collectible, if misappropriated funds can be recovered and transferred funds recoverable.