Collecting a judgment can be challenging, especially when debtors actively work to conceal their assets. In New York, sophisticated judgment debtors employ various tactics to shield their property and income from creditors. Recognizing the warning signs of asset concealment early can make the difference between successful recovery and a worthless piece of paper. Here are ten critical red flags that suggest a judgment debtor may be hiding assets.
Sudden Transfers to Family Members or Close Associates
One of the most common red flags is when a debtor transfers property, bank accounts, or business interests to relatives, romantic partners, or close friends shortly before or after a judgment is entered. These transfers often occur for little or no consideration and may be structured to appear legitimate on the surface. If you discover that a debtor’s spouse, parent, or sibling suddenly acquired valuable assets around the time of litigation, this warrants immediate investigation. New York’s fraudulent conveyance laws provide remedies to unwind these transfers, but time is of the essence.
Claims of Being “Judgment Proof”
When a debtor quickly claims to be judgment proof or insists they have no assets, this should raise suspicion rather than discourage collection efforts. Truly indigent debtors rarely advertise their financial status so readily. Experienced Warner & Scheuerman attorneys know that debtors who protest too much about having nothing often have something to hide. This defensive posture may indicate they have already taken steps to conceal assets or are actively planning to do so.
Formation of New Business Entities
The creation of new LLCs, corporations, or trusts following a judgment is a significant red flag. Debtors may establish these entities to receive income, hold property, or conduct business while keeping assets beyond the reach of creditors. Watch for situations where a debtor claims to have no personal assets but continues to maintain a comfortable lifestyle. The funds supporting that lifestyle may be flowing through newly created business structures designed specifically to frustrate collection efforts.
Continued Lifestyle Inconsistent with Claimed Financial Status
Perhaps the most obvious warning sign is when a debtor’s lifestyle does not match their claimed poverty. If someone asserts they cannot pay a judgment but continues to live in expensive housing, drive luxury vehicles, take vacations, or make significant purchases, assets are likely hidden somewhere. This disconnect between claimed financial distress and actual spending patterns often reveals income sources or asset ownership that the debtor has not disclosed.
Incomplete or Evasive Responses to Information Subpoenas
New York law provides creditors with powerful discovery tools, including information subpoenas and debtor examinations. When debtors provide incomplete answers, claim not to remember basic financial information, or repeatedly delay responding to proper discovery requests, they are likely concealing something. Similarly, debtors who refuse to appear for properly noticed examinations or who appear but invoke questionable privileges may be hiding assets.
Offshore Accounts and Foreign Transactions
The presence of offshore bank accounts, foreign business entities, or cryptocurrency holdings represents a modern red flag for asset concealment. While not all international financial activity is improper, debtors who suddenly develop offshore interests after a judgment is entered are often attempting to place assets beyond the easy reach of New York courts. Cryptocurrency poses particular challenges due to its pseudonymous nature, making it attractive for debtors seeking to hide wealth.
Employment by Family Business at Below-Market Compensation
When a judgment debtor becomes employed by a family-owned business at suspiciously low wages despite having valuable skills or experience, this arrangement may be designed to minimize garnishable income. The debtor may actually be receiving compensation through other means such as benefits, expense accounts, or informal payments that do not appear on official wage records.
Timing of Asset Sales and Dispositions
Asset sales that occur immediately before or after a judgment, especially when sold below fair market value, indicate potential fraud. If a debtor sells real estate, vehicles, or business interests in quick succession following an adverse verdict, these transactions deserve scrutiny. The proceeds from these sales may have been transferred to protected accounts or converted to difficult-to-trace assets.
Use of Nominee Ownership Structures
Sophisticated debtors sometimes hold assets in the names of nominees or strawmen who appear to be the legal owners but actually hold property for the debtor’s benefit. This can include real estate titled in another person’s name, bank accounts controlled by the debtor but nominally owned by someone else, or business interests held through intermediaries.
Patterns of Cash Transactions and Unreported Income
Debtors who operate primarily in cash or who have businesses with significant cash components may be concealing income and assets. If bank deposits do not reflect the level of business activity or lifestyle expenses, the debtor may be maintaining hidden cash reserves or using unreported income to fund their living expenses while claiming inability to pay.
Taking Action on These Red Flags
Identifying these warning signs is only the first step. New York law provides creditors with robust tools to investigate and recover hidden assets, including turnover proceedings, restraining notices, and fraudulent conveyance actions. The key is acting quickly when red flags appear, as asset trails grow colder with time and debtors become more sophisticated in their concealment efforts.
