Breaking trust, breaking trusts
We all too frequently get calls from people who have lost money. They frequently know where the money is, but believe that it cannot be seized because it is held in trust, or otherwise exempt. A common trick to hide stolen assets is to moving them from non-exempt to exempt categories such as trusts, contract annuities, homes, insurance policies, retirement plans, and relatives. Unfortunately, many people believe that exempt funds cannot be touched. So what exactly does exempt mean, and why don’t we care?
When discussing garnishment, assets fall into one of two categories, exempt and non-exempt. As a judgment creditor, you can garnish non-exempt assets to satisfy a judgment.
Exempt assets, as our potential clients are painfully aware, cannot be seized by a judgment creditor to satisfy a judgment. Thus the name, exempt, since they are exempt from garnishment or seizure.
Exempt assets that cannot be garnished are:
• your homestead up to the state’s value ceiling
• qualified retirement plans
• a portion of current wages for personal services (except for enforcement of child support)
• professionally prescribed health aids of a debtor or a dependent of the debtor
• alimony, support, or separate maintenance received by the debtor
In addition, depending upon the state, some net aggregate value of the following types of assets:
• home furnishings, including family heirlooms
• provisions for consumption
• farming or ranching vehicles and implements, if you are a farmer
• tools, equipment, books, and apparatus used in a trade or profession, including boats and motor vehicles
• clothes • jewelry (not to exceed some specified dollar amount)
ÆGIS, August 2006 2• some specified number of firearms
• athletic and sporting equipment, including bicycles
• a vehicle, up to some specified value, owned by one who holds a drivers license or who does not hold drivers license but who relies on another person to operate the vehicle for the benefit of the non- licensed person
• in Texas two horses, mules, or donkeys, and a saddle, blanket, and bridle for each; twelve head of cattle; sixty head of other types of livestock; one hundred twenty fowl; household pets
Everything else is subject to being seized by a judgment creditor. All business assets are non-exempt assets. The ownership of the business (such as in the form of stock or partnership interest) is most likely a non-exempt asset. Stocks, bonds, bank accounts, et cetera are all non-exempts assets.
And why we don’t care
The line between exempt and non-exempt blurs a great deal when there is a fraud. What frequently happens with the more sophisticated fraudster is that the stolen money is placed into some asset either not titled in their name, such as a trust or a company, or the assets are titled in the name of someone else such as a relative or a friend. Generally if the asset investigator can show clearly that there is no way that the fraudster could have obtained or maintained this asset without the benefit of the stolen funds, the asset – whether it is now structured as one of the exempt asset or titled in another persons name – is no longer exempt!
For example, a fraudster pilfered many millions of dollars from his employer over a long period of time. He was convicted and sentenced to jail. His house was sold. He claimed the homestead exemption, and that a portion of the value of the house was his. It was shown that stolen money went into buying the home, and that he could not have purchased maintained the home without the stolen funds. The judge ruled that since the money used to buy the home – and the money used to maintain the home – all came from the predicate offense of a crime, not only were these funds no exempt assets.
And what happens when a third party help the person hide the money? The third party may become liable for a portion or all of the judgment! And in
ÆGIS, August 2006 3
our experience, when you start seizing the property of friends and relatives of fraudsters, they become very cooperative….
It is important to be aware that the roles played by investigators and attorneys are distinct and clear. Investigators develop information that can be used by the attorneys in court to move assets from the exempt category into the category of non-exempt assets. Both parties must be very familiar with the level and quality of information needed, and with the motions and pleadings that need to be filed. If the team supporting you has not done this kind of specific work before, don’t let them practice on you. Get experienced professionals.