The Expert Podcast

This question comes up a lot for potential clients at the creditor or even a debtor: what is the consequence of hiding assets or hiding financial transfers? It’s more of a legal question than an investigative question. So remember, we're not attorneys, we're not giving you legal advice, but we can tell you what we've seen in the many cases that we work with as investigators.

The big caveat to this is when you're asking about hiding assets and whether it is a liability or has consequences, the first question is: who are you hiding it from? If you're hiding assets in general from the public, as long as you're not doing anything illegal, there's usually no consequence for hiding an asset. The trouble comes when you're hiding an asset from a creditor, the government, bankruptcy proceedings, or a spouse in a divorce.

There is a legal term called "fraudulent conveyance." If you are involved in the dissolution of a marriage, a partnership, a lawsuit, a loan, or a contract, and the assets are pledged or belong to another party, then start moving assets around—selling them to people or quit-claiming houses—the other party can come forward and say that you've committed fraudulent conveyance. This means you've taken an asset that somebody had a legal right to, either as collateral for a loan, as community property in a marriage, or as security for a debt or partnership, and transferred it to a third party fraudulently because you didn't have the rights to transfer it.

The asset doesn't necessarily have to be physically documented with a loan contract against it. There are many statutory contracts or statutory ownership claims that exist. For example, when a person dies and a relative sells off some of their assets, we see this a lot in vehicle titling. Someone’s grandfather dies, and they had an old car in the barn, so the family member takes that car and sells it to a third party. The problem is that, technically, when someone dies, unless there’s a will and a probate process, the assets must first go to pay any debts. If the grandfather owed $3,000 on a credit card, that credit card debt must be settled before any assets are distributed. If someone starts moving assets away or transferring them, that can be considered fraudulent conveyance.

Remember, we are not attorneys, and you should check this with a qualified attorney. Most people do this unintentionally, but you must be aware of the rules. In many cases, there may not be any consequence because the credit card company may never check what happened to the car. The problem arises when an event triggers an asset search. For example, if someone files for bankruptcy and the bankruptcy trustee conducts an asset check, they might find that assets were transferred right before the filing, which could be problematic.

In divorce cases, it’s good practice to run an asset search on the other party to find out not only what assets they currently have but also which ones were recently transferred. If a spouse in a divorce sells off a company six months before the divorce is finalized, there could be a claim that the asset or its value must be brought back into the settlement. Hiding assets, in itself, is usually not a criminal or problematic act, but the reason behind hiding them can create legal trouble.

If the court tells you to preserve assets or if you are involved in litigation where the court orders you to freeze assets while a lawsuit is pending, but you start transferring assets, that can be considered an offense against the court. You could be held in contempt or even face criminal charges.

Another example is when you have a loan against something and then sell it. Whether it's a vehicle or equipment, there could be consequences. We had a case a few weeks ago where a large piece of construction equipment—a drilling rig—was sold by a party out of state. This equipment was worth several hundred thousand dollars. When the buyer tried to obtain documentation and a title for the equipment, our research showed that the seller had numerous judgments, tax liens, and financing obligations tied to their business. The finance contract was a blanket agreement covering all equipment owned by the business. Even though there was no specific lien against the serial number of that drilling rig, it was still covered under the financing contract.

The seller, who was short on cash, started selling off equipment that had been funded through a loan. So if you are wondering whether hiding an asset is illegal or has consequences, it probably does—because the very reason you are asking likely means that there is a concern about its legality.

The most important thing is to get good legal advice from an attorney. Don’t rely on advice from an internet chat group, a Facebook friend, or even a private investigator like us. While we can provide insights, you should not take any action until you receive qualified legal advice. Your situation might be perfectly fine to transfer an asset, but it might also be a serious legal issue. You don’t want to find yourself unintentionally caught up in a legal problem.

Leave some comments below and let us know what you think or what other questions might be worth discussing.