Disclaimer: I am not a lawyer. I am
only publishing my interpretation of my situation. You should seek your
own legal representation for your own particular
situation. Do not rely on my
opinions or statements for your own purposes as state
and local law varies as do individual circumstances.
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I recently had to sell a lot of stock shares in order to
settle a judgment against me from Small Claims Court. I had to
sell the stocks at a loss. Had I not had a judgment against me,
I would never have sold those shares of stock at the time; but I
was forced to sell them due to the court order. This hurt me a
great deal as I know that those stocks will eventually recover
and be worth a lot more money in the future. This has, however,
taught me a valuable lesson that I must either not expect to
hold on to investments when I owe other people money or I must
learn to protect those investments from people I owe money.
Any investments in a
regular brokerage account may be claimed by anyone (or any
company or any organization) that takes you to court and gets a
judgment against you. Once that other person gets the judgment
against you, they will make you give a deposition (probably in
court and under oath) where you must disclose all of your
assets. This deposition may go as far back as three years as
well and will involve all of your real estate, vehicles, bank
accounts, stock accounts, savings accounts, foreign
investments... everything. If you try to hide anything, you just
might find yourself in jail (we may not have debtor's prison
anymore, but they may put you in jail for other related reasons
such as perjury).
There are, however, a few
exemptions. A 401k account and I.R.A.'s are usually a couple of
these exempt assets (do not count on keeping them from the
I.R.S. however). Put your money in these for long-term
investments in the hopes that any judgments against you will not
be able to claim these assets. Unfortunately, investments in
these accounts may be limited to certain funds and not
individual stocks. Also, consult with your lawyer before you
move any money into a 401k or IRA as a bankruptcy judge might
view this as hiding money. In such an instance, you might have
to take the money back out (probably subject to tax and
penalties) and there might even be legal issues or risks beyond
that (remember the jail reference).
For short-term
investments, keep your brokerage account handy. You can invest
in individual stocks and buy and sell shares as you like. There
will be risk involved as any judgment against you might come up
and require you to liquidate and distribute the cash from the
sale. Also, if you sell shares and take the cash out of the
brokerage account, a deposition will require you to disclose
this transaction and you will have to account for where that
cash is or how it was used with proof (most likely).
While writing this
article, I have had a few thoughts about when I sold a chunk of
stock to settle my Small Claims Court claim. I sold the stocks
and paid the debtor (the condo association) cash. If I had it to
do over again, I think I would have at least asked the
prosecuting attorneys if the condo association would take shares
of stock in lieu of cash. Plus, I might have even gotten them to
take less stock than was needed to settle the claim since the
condo association could hold on to the stock and wait for it to
appreciate. I doubt the condo association would have had the
forethought to take this proposition, but I wish I had at least
tried. No doubt, a similar situation will come up soon enough
for me. I will be sure to consider this option then.
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