Now and then, we get asked to do an asset search on a doctor and these can be challenging ones.
Doctors are afraid of getting sued. Some who are not even married or who have no inkling that divorce is on the horizon are often inclined to make themselves look “judgement-proof.” That means you can win a money judgment against them, but you won’t be able to collect anything unless you find concealed assets that are unencumbered by a previous creditor (a bank holding the mortgage or a lien on the equipment, for example).
Depending on their specialty, the chance of a doctor getting sued for malpractice can be extremely high. Doctors who deliver babies, for instance, have very expensive insurance policies. In some states, doctors may decide insurance premiums are too high to make it worthwhile to practice, and so they forgo insurance and just hope that anyone who sues them will be dissuaded by an absence of assets.
We once had a case in which a well-respected OB/GYN lived with his wife in a home worth more than $1.5 million. He drove nice cars and had been practicing for decades without too many lawsuits.
But it turned out that his house was almost completely mortgaged, his cars were leased, and his medical practice seemed to have no assets to speak of. It rented its premises, and the practice itself wasn’t even formally incorporated.
It stands to reason that if someone works for decades in a profession and doesn’t appear to give all his money away, he’s going to be earning somehow. But where was his money?
How We Cracked It
The doctor worked for a statewide practice that had a number of offices. We found that this statewide practice was a fictitious name, owned and registered by an actual company. That company owned the offices the doctors used.
In addition, the doctors of the network loaded all major liabilities onto the company, resulting in some 60 UCC liens that appear to include much of the equipment across the network. The real estate was mortgaged so it looked as if these doctors had little for creditors to go after.
But as the old saying goes, you have to follow the money. How did the corporation pay the individual doctors? Share dividends would be inconvenient because what if different doctors merited different amounts of pay?
We found that the parent practice began as a limited liability partnership, but then converted to limited liability company status. We found a list of presumed partners prior to this conversion. These partners were all numbered limited liability companies, including the one we associated with our doctor.
We went through each numbered company (there were a few dozen) until we found the one with our man’s name on it.
The Takeaway
Always do a full check of any company associated with the doctor. If the doctor owns the practice, what else does the doctor own? Sometimes it’s the non-hospital operating room the doctor uses for his procedures. The money from the operating room venture won’t come as salary, but will be corporate earnings for the holding company. Unless it pays the doctor a dividend in the year of the tax returns you are looking at, you won’t see that money.
Even if the doctor is paid out, he could be holding that operating room company via another LLC, for example. That’s why a books and records request in discovery for all holdings is imperative.
In the case above, we recommended that our client subpoena the books and records of the numbered company. There were millions of dollars at stake, and our bill was $4,500. For the client, it was money well spent.