In honor of today’s $1.5 billion Powerball jackpot, we bring to the top the piece we wrote nearly three years ago, Jackpot! Finding Lottery Winnings.

hidden powerball winnings

The executive summary of that entry is that lottery winnings are federally taxable and therefore harder to conceal than other kinds of assets. If you can subpoena a tax return you can usually see signs of the gambling income unless the other side is actively evading the IRS.

Prior to the subpoena stage, however, it would be a staunch individual who would not be tempted to spend at least a bit of the $900 million cash value of today’s Powerball (assuming a single winner and the election of the lump sum amount after withholding).

But what about if the winnings are older or, while not as large as $900 million, large enough to elicit some new spending?

There, we start to talk about the special way asset searchers look for cash.

Our approach is that absent a court order that gets you into bank account records, the search for cash is most often the search for things that will lead you to cash.

In looking for non-cash assets, we pay especially close attention to the way those assets were acquired. Where did the cash come from? Were there companies we have never seen before used as acquiring vehicles?

We once had a case in which a New York resident bought New York property on several occasions over a period of a year. The buyer’s signature on each and every one was notarized in Dallas, where we had no record of any buyer activity. A short time later, a more detailed search revealed Texas business links and more assets.

Like anything else brought out into the sunlight, assets of any kind cast shadows. Those shadows can tell you a lot.

Want to know more?

  • Visit charlesgriffinllc.com and see our two blogs, The Ethical Investigator and the Divorce Asset Hunter;
  • Look at my book, The Art of Fact Investigation (available in free preview for Kindle at Amazon);
  • Watch me speak about Helping Lawyers with Fact Finding, here.

We’ve heard of people stowing money beneath the mattress and under floorboards before, but we recently came across this article about the family of convicted Ponzi-schemer Ron Wilson hiding Wilson’s money for him in ammunition canisters.  That’s a new hiding spot for us.

Wilson’s brother, Tim, and estranged wife, Cassie, pleaded guilty last month to conspiracy to obstruct justice in a South Carolina federal court.  This was no small offense, the charge carries up to five years in jail and a $250,000 fine.  According to the article, Ron Wilson handed over the canisters of cash to Tim and Cassie right before he was set to plead guilty to mail fraud, in case he were ever released from prison.   Cassie Wilson’s canister had $172,859 and Tim got $164,300.

We’re blogging about this story not because we think ammunition canisters are the first place you should look for assets, but because this story highlights two things that we come across regularly in asset searches:

  1. People tend to stash their money with close friends and family.  We’ve blogged about this here before.  If someone wants to appear cash/asset poor, friends and family are a good place to stow money or other assets because, chances are, they’ll give it back.  We always look at the full picture and have been successful at identifying transfers of assets from our debtor to a close friend or family member for our clients.
  2. People get creative when they hide their money.  It’s important to approach asset searches with an open mind.  Before we start any marital asset search, we ask our client to fill out a questionnaire about their spouse.  The more information we have about our subject, the more assets we are likely to find and the greater chance we’ll be attuned to something about our debtor that just might be the key to finding their assets.

So you may not have to go running to find ammunition canisters in the house, but when approaching an asset search, really think about your debtor.  Where or with whom might he/she hide assets?  You probably know more than you think.

PROBLEM:

You are fairly certain your debtor has a life insurance policy and you are worried he may try to cash in on it before you get divorced.

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SOLUTIONS:

The law surrounding life insurance policies in divorce can be confusing and fact-specific.  Whether or not a life insurance policy is separate or marital property will depend on factors such as the owner of the policy, the funds that paid thlife insurance settlements, life insurance beneficiary, hidden assetse monthly premiums and whether the policy was purchased before or after the marriage.  Nonetheless, it is not uncommon in divorce proceedings to see an automatic temporary restraining order which prohibits selling assets and modifying beneficiaries on life insurance policies.  You are therefore right to be concerned with the status of your debtor’s life insurance policy, and it is quite possible that he is prohibited from selling the policy or removing you as the beneficiary while the proceedings are ongoing.

There is indeed a market for the purchase of life insurance policies where the insured is still living.  In most cases, this market is for seniors.  There are a few ways you could go about learning whether or not your debtor may have sold his policy for cash, known as a life insurance settlement.  First, as we often blog about, tax returns are key to uncovering this asset.

The surrender of a life insurance policy falls under ordinary income for tax purposes.  The best place to find evidence of a life insurance settlement is to look through your debtor’s 1099 forms.  If your debtor sold his policy, he should have received a 1099 form reflecting the difference between the life insurance settlement payment and the total premiums paid on the policy.

Depending on when your debtor sold the life insurance policy, it’s possible that it may not appear on the most recent tax return.  If this is the case, there are other places to look.  If you have a shared computer, take a look through the browsing history.  Does it look like your debtor visited life insurance settlement websites?  If you legitimately have access to the computer, the browsing history is a fantastic way to uncover information.  Be careful, if it is not a shared computer, you may be breaking the law by accessing it.

Finally, don’t forget to use the court’s discovery process to your advantage.  Tell your lawyer everything that you know.  If you think there is a life insurance policy, make sure that you ask for all documents concerning the policy in discovery.  Your lawyer has a general idea of the types of discovery to request, but you probably have an even better idea of the specific types of assets your debtor might have.

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PROBLEM:

For years, you have heard your debtor complain about a lawsuit between him and his former business partner.  You suspect that the case is nearing a close, and that the debtor may receive a sizeable payout.  The debtor tells you that the case is worth nothing and that, after paying his legal fees, he will not receive a penny even if he wins.

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SOLUTIONS:

Court records can provide a wealth of low-cost or free information about money the debtor may have coming his way.  The best place to start is a litigation search in the jurisdictions where the debtor lives or does business.  The type of search you need to conduct will depend on your debtor’s location.  For example, some courts now make all of their records available online.  Other courts have very few online records, so you will need to actually go to the courthouse to find evidence of litigation involving the debtor.  Be sure to do a thorough search of federal, bankruptcy, state and local courts to maximize your chances of finding a pending award.

Once you determine where you should search, look for litigation in which the debtor, his businesses or his business partners are named as plaintiffs.  Once you retrieve the case file, you will be able to see whether the case was resolved or if it is still ongoing.  If the case was resolved by settlement, look for a stipulation of settlement filed with the court.  In some cases, the terms of settlement are stated “on the record,” in which case you would need to order the transcript of the proceedings to see what the debtor received.

If the parties settled but did not submit the terms of settlement to the court, then you may only be able to find out how much your debtor received through media searches and interviews.  News articles will occasionally give estimates of settlement amounts in high-profile cases.  You can find media reports with a simple internet search of the debtor’s name along with the names of the other parties in the lawsuit.  If there is no media coverage of the case, try conducting interviews with the debtor’s friends, family or business associates.  The temptation to brag about his big payout may have been too strong for your debtor to resist.

If the case resulted in a final judgment, such as a jury verdict or summary judgment in the debtor’s favor, then a record of the final judgment amount will be filed with the court.  The final judgment is often not included in the case file, and you will need to conduct a separate search with the clerk of court to find it.

As we wrote here, class action awards are the exception to this rule.  Unless your debtor is a named plaintiff, you will not be able to find evidence of the pending award through a litigation search as lists of class action claimants are not public documents.  You may only uncover a class action payout through interviews with friends and colleagues or through specific discovery demands.

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PROBLEM:

Your former spouse disappears for weeks on end, telling you that she’s been travelling for business.  You suspect that she is really dissipating marital assets by jetting off to Paris or Napa, her favorite spots for a romantic getaway, and taking her new beau along for the ride.

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SOLUTIONS:

Vacations are expensive, so evidence of a trip should appear in the debtor’s financial records.  For example, if you have access to the debtor’s bank records, look for large cash withdrawals around the time you think she was preparing to go away.

Credit card records may also prove helpful.  Plane tickets and rental cars are generally reserved and paid for with a credit card, and those charges would appear on an itemized statement.  Also look for charges at restaurants or gas stations, as credit card records will show not only the amount of the debtor’s charges, but also where those charges were made.

An absence of charges to a joint card that the debtor usually uses on a daily basis can also be telling.  If you see a gap of a week or two in spending, this could be evidence that she is using cash to avoid leaving a paper trail of her trip.  If this is the case, check for suspicious charges immediately prior to when she left.  Even if your debtor is smart enough to avoid putting a suite at the Four Seasons on the joint card, she may have slipped and bought a new suitcase or other travel accessory prior to her departure.

If the debtor claims to be travelling for a business she owns, look at the debtor’s tax returns from the time she took the “business trips, “ and see if the amount she deducted for business travel expenses matches up with the number of trips she took the previous year.

Beyond financial records, look for evidence around the house.  Has a new passport come in the mail?  Are there travel sites on the browsing history of the family computer?  If she says she is travelling for business, check to see whether she packed business suits or just shorts and flip flops.

If you own a vacation property and you suspect that she may have taken her paramour there, call local bars and restaurants where the owners know you.  Tell them that you urgently need to speak to your wife, and she is not picking up her cell phone.  Ask if they have seen her lately.  They may even tell you whether they saw her canoodling with a companion.

Finally, if you know who the debtor’s paramour is, you can call and ask for him at work while you think he is away on vacation.  Say you have an urgent delivery for him that he has to sign for, and you need a fax number where you can send him an authorization form to sign.  This approach is more likely to get you the name of a hotel than just the paramour’s cell phone number.

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Gossip sites were all abuzz last week with news of rapper Lupe Fiasco’s legal battle with Inita Patton, the estranged wife of convicted drug kingpin and Fiasco’s mentor, Charles Patton.  The court filings have yet to be released to the public, but reports say that as part of her divorce action against Patton, Inita sued Fiasco in an attempt to recover millions of dollars in drug money that Fiasco allegedly hid at Patton’s direction.

Inita claims that Fiasco funneled Patton’s money through Fiasco’s music production company, 1st and 15th Productions, Inc., and into secret accounts.  Charles Patton has apparently counter-sued Inita, alleging that she pocketed funds intended for real estate purchases that she never actually made.

When we are called upon to help find where a spouse has hidden assets, the first thing we look for are companies owned by the spouse, his family and his close associates.  While we cannot legally access bank account information for these companies, their mere existence can provide a substantial clue that the spouse has been less than forthcoming in his financial disclosures to his spouse.

For example, one client asked us to look into three or four companies in which she thought her husband was involved.  We ended up uncovering nearly fifty companies in multiple states that he owned either alone or with his business partners.  Exposing the debtor spouse’s lies about side companies can give the creditor spouse significant bargaining power in settlement negotiations and pave the way for broad financial discovery in divorce proceedings.

The second place we look for hidden assets is in property records.  We could easily verify whether Inita Patton had actually purchased the real estate she received money to buy.  A simple county-level search, as we explained in our post on tracking down real estate, will show whether she owned the properties Inita said she bought.  Information on any mortgages she may have used to purchase the property would likely be available in the same database, depending on the county.

PROBLEM:

Your debtor is a fairly accomplished author and you’re pretty sure that he periodically receives royalties on some of his works, even though he tells you that he doesn’t earn any royalty income.

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SOLUTION:

As is often the case, your debtor’s tax returns are a great place to find evidence of an asset.  Royalties are taxable income.  The debtor should therefore have reported any royalties he received in a given year on his tax filings.  Depending on which type of royalties he earned, you will find the royalties reported on his form 1040 and either the Schedule E to the 1040 or the Schedule C/Schedule C-EZ.

If you have access, another great place to look for the income is in your debtor’s bank records.  If your debtor is receiving royalties, he is probably receiving them on some kind of a regular basis.  If he’s depositing checks each month in roughly the same amount from the same entity, he just may be receiving royalties as you suspected.

In our blog about tracking down a patent, trademark or copyright, we told you how to search the U.S. Copyright Office and U.S. Patent Office for patents, books, music, art and other “works of authorship” in which the U.S. has vested a property right.  Both the Patent and Copyright offices allow you to search using the name of a person.  If a copyright is registered to your debtor, you might be able to find it by doing a name search.  This won’t show you the amount your debtor makes in royalties, but it will give you a better idea as to which copyrights earn your debtor income.

Once you have figured out a bit more about the types of royalties your debtor earns, it’s time to get on the phone.  If you know the publishing company or entity that is paying your debtor royalties on his work, give them a call and ask them for the amount your debtor earned for the most recent earnings period.  The person on the phone will probably be unaware of the circumstances surrounding your divorce and might not hesitate to answer this question for you.  This will give you insight both into the amount earned by your debtor as well as how often your debtor receives the payments.

Finally, don’t assume that your debtor only earns income on works that he copyrighted.  Maybe your debtor’s mother was a singer with a couple of hit singles several years ago.  Maybe his father wrote a best-selling novel which is still sold at your local Barnes & Noble.  Think back to stories your debtor has told you about his family members.  It just may be that one of them left their lucrative royalty rights to your debtor.

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PROBLEM:

A debtor hit it big in a poker tournament and promptly squirreled away the prize money.  Now, when the creditor asks about the winnings, the debtor’s response is, “Poker? Sure, I play for fun, but I’ve never won any real money at it.”

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SOLUTIONS:

Like lottery winnings, which we wrote about here, all gambling income must be declared to the IRS.  If you have access to the debtor’s tax returns, gambling winnings should be reported as part of his gross income.  Professional gamblers should report their winnings as business income.  Your debtor is only a professional if his “gambling activity is pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby.”  Commissioner v. Groetzinger, 480 U.S. 23 (1987).

When a gambler wins at a casino, the casino sends him (and the IRS) a W2-G reflecting the amount of the win.  If the gambler does not report the winnings, he may be prosecuted in tax court.  Tax court records, which we always review as part of any asset search, may reveal the amount of his winnings.  The picture is murkier in the case of offshore online gambling sites, which exists in a sort of regulatory limbo.  The IRS will not receive a W2-G from the online gambling site, so, although the gambler is still required to report the income, he is essentially on the honor system.

If you have access to financial records, look for evidence of travel to gambling destinations like Las Vegas or Atlantic City.  Also, pay attention to purchases that the debtor made while on his trip.  A luxury impulse buy or a lavish dinner may be clues that the debtor celebrated a big win, even if he has hidden the winnings.

Litigation searches can also reveal a debtor’s gambling activities.  In the course of one of our investigations, we found court records showing that the COO of a major corporation had tried to avoid his gambling debts at an Atlantic City casino by arguing that he did not have to pay because he was not a New Jersey resident.  Unsurprisingly, he lost the case, but the court records gave us a window into his gambling habits.

Finally, never underestimate the human need to brag.  Chances are, if a casual gambler beat the odds in Vegas, he’ll tell his story to anyone who will listen.  Talk to friends, family, co-workers or, better yet, gambling buddies.  Also check social media outlets to see if the debtor has been boasting to his friends.

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PROBLEM:

The debtor doesn’t have it yet, but is expecting a major payment when a class action suit settles and he comes into more than $100,000. However, he is not the lead plaintiff and his name doesn’t appear anywhere you can see as it would on other kinds of litigation.

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SOLUTION:

Among the hardest kinds of assets to track down, class action awards that have yet to be paid out appear nowhere on the public record.

One such case got wide attention last month when an Illinois couple was convicted of bankruptcy fraud for concealing a pending payout of $113,000 in a class action suit involving Vioxx. They got the money, just after debts of $25,000 were discharged in a Chapter 7 filing by a judge who had no way of knowing about this pending payment.

The tip-off came from the debtor’s class action attorney, who knew that his client had withheld the information about the pending payment from the bankruptcy court.

But absent a conscientious lawyer, how would you find evidence of a class action payment that’s on its way?

  • Make sure to ask for it specifically, even if the statutory asset disclosure form in your state does not make class action awards a separate category. The reason you have to ask is that unless your debtor is the lead plaintiff, the list of class action plaintiffs is carefully protected by class action administrators, and isn’t even provided to the court as a matter of course. Claimant lists that do make it to court are not public documents.
  • Interview people close to the debtor. We’re written extensively about the power of interviews on our other blog, The Ethical Investigator, here and here. If you were in line to receive $113,000, you could possibly keep that information from the bankruptcy court, but you would perhaps tell colleagues or friends about the settlement. The only way to reach those colleagues or friends is to call them and strike up a friendly conversation with them.
  • Don’t pin your hopes on the Bankruptcy Trustee auditing process. While a powerful tool, audits have been performed on only a fraction of the consumer bankruptcies. As of March, probably because of the federal budget sequester, all audits have been suspended. If you want to uncover bankruptcy fraud, you’re probably going to have to do it yourself or hire someone to help you.

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