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Published By Citizens' Justice Programs
Post Office Box 90, Hull, Massachusetts 02045
Some Thoughts on Litigation and Financial Privacy
By David C. Grossack, Constitutional Attorney
Common Law Copyright © 1994
All Rights Reserved
You see them in your morning mail at least once a week now.
They have scary messages in the envelope like "Avoid Seizure of
Property, Open Immediately" or "Kiss Your Assets Goodbye!"
Inevitably, such missives will ask you to purchase a report on "Judgment
Proofing" or "Homesteads" or a related topic from one of the
plethora of experts in a growing industry, the financial privacy game.
It caught up with me one afternoon in Boston Municipal Court. As a
litigation attorney, my work consists in large part of seeking to recover money
from individuals or companies who do not want to part with it.
A pro-se defendant ("pro-se" means representing oneself
without a lawyer) walking up to me shouting "You may as well give up now;
you'll never get any thing from me ... I'm judgment proof!") Here was
someone who knew the game and who was trying to wear down my offensive. If you
ask anyone active in any aspect of litigation, "judgment proofing"
means essentially arranging one's income and assets so legal predators will be
unable to seize either.
There are several ways in which an attorney can seize income or assets.
The first is called "pre-trial attachment." This is when
permission is granted from the court to prevent you from selling or mortgaging
real estate prior to a decision in the case in which you are the Defendant. The
purpose is ostensibly to make certain you will have assets to satisfy a judgment
A simple way to convince a judge to vacate an attachment is to produce an
insurance coverage certificate which will apply to the specific cause of action
brought against you.
Attachments are public records and are routinely monitored by credit rating
services. They are often published in real estate journals. Bank accounts are
seized in proceedings similar to real estate attachments, as are wages.
Some states will allow your property or bank accounts to be seized without
the opportunity to be heard. A boiler plate affidavit alleging a risk of a
property transfer can convince a judge to issue an order of pre-trial attachment
on an "ex-parte" basis, (meaning a party is not present, that
party being you.)
If you are unlucky enough to have a judgment issued against you, the
opposing attorney(s) can ask the court to issue a document known as a "Writ
of Execution." This can be used to seize property, business equipment,
inventory and bank accounts, and to authorize sheriffs to auction off your
In situations where no assets can be found to satisfy a Judgment and
Execution, plaintiff-creditors can force you into court and have you ordered to
disclose all of your assets, income, beneficial interests in trusts and so
forth. Failure to attend these hearings, known as "poor debtor sessions"
or "Supplementary Process Proceedings" is considered a
contempt of court and at least in theory is punishable by arrest by constable in
Massachusetts, and other states.
In reality many debtors ignore supplementary process notices and the threat
of arrest by constable.
It is both easy and common for a lawyer to accumulate hundreds of thousands
of dollars in uncollected judgments.
An industry is emerging to add to this trend. Call it the Financial Privacy
Industry. The theory behind it is quite simple. Don't be a sitting duck for bill
collectors. Purchase legal and financial services to avoid creditors. You can
even purchase an offshore bank in the Republic of Palau for $7,500.00 (this may
be the ultimate in asset hiding.)
Service bureaus sell turn-key bank operating systems for prospective bank
owners and it cannot be disputed that bank privacy and anonymity is greater in a
variety of off-shore locations than here in the USA.
For generations wealthy Europeans have availed themselves to a device known
as a Liechtenstein "anstalt" which holds some similarity to
the US common law trust for the purpose of changing legal, but not necessarily
beneficial ownership of assets.
Since ancient Roman times there has been the forerunner of the trustee,
known as the "straw", i.e. a trusted friend, who held
possession of goods or land while the real owner was at war, incarcerated or
otherwise out of the picture. Americans are now using trusts in record numbers,
and perhaps straws as well. Having been a litigation attorney for a number of
years it is not without some frustration I have encountered defendants who
obviously use these or other methods to avoid leaving a paper trail of their
Because there is a Registry of Deeds system in every state, and because huge
data bases exist that any financial detective can plug into (by stealth if need
be), Americans really do not have much financial privacy, especially if they
become involved in litigation. Many devices offered by lawyers and other experts
do not work, or go haywire.
One prominent businessman had a corporation for his business and his wife
was trustee for the family home. He made the ignorant mistake of placing shares
of the corporation in the name of the trust.
The IRS (Internal Revenue Service) assessed various charges, fines and
penalties to the corporation and also hit the family realty trust with liens
arising from the corporate debt. Placing a home in a trust is not always a
perfect shield. Equity actions can easily pierce a trust if a judge feels that
the trust was used to avoid creditors in bad faith.
Horror stories do abound in the course of ordinary litigation. A man
purchased a restaurant with a promissory note and defaulted. He failed to obtain
the promisee's consent to transfer ownership of the business, there was an
indefensible lawsuit and an attachment as well as a judgment sale of his home.
He had signed all notes personally and allowed his home to remain in his name.
People do occasionally become forced out into the street because of
unforeseen litigation problems and need to take as many steps as possible to
place barriers in the way of those seeking to acquire their property for real or
Thus an incentive exists for the purveyors of financial privacy, judgment
proofing devices, and so forth. Anyone who has been the victim of an ex-parte
attachment might be interested.
Some of the best devices are also the cheapest. Many states protect a
family's interest in its primary residence by permitting the filing of a "homestead
deed." In Massachusetts, homeowners can shield $200,000 equity,
excluding mortgages and tax liens. Even certain commercial real estate can be
The costs of a homestead including a ($10.00) ten dollar filing fee and then
whatever a lawyer can get away in charging to draw it up. Over $90.00 would be
Trust formation generally costs $750.00 and upwards.
Due to high malpractice premiums, many attorneys (yes, we are being sued in
increasing numbers) and physicians are now seriously exploring judgment proofing
and financial privacy.
Newsletters are appearing in the mail telling stories of professionals
ruined by outrageous jury verdicts, and offering bank accounts in the Channel
Islands, Grand Turk and even the Cook Islands, near New Zealand.
It is scary to contemplate placing one's earnings in a jurisdiction where
deposits are not insured and, where the protections afforded by our government
are not present.
Nevertheless, our litigious society has created a boom in financial privacy
services and judgment proofing. Traps for the unsophisticated and new frontiers
for the adventurous will no doubt bring more news stories for these pages in the
not too distant future.
The author is an attorney in private practice in Boston.