This is based on a real (ongoing) situation.
Suppose a lawyer steals $1000 from a client account and spends it. He (assume) is arrested and freely admits doing so.
His only remaining asset is a car worth $1000. The only other claim against him is a tax bill for $1000.
Who should or would get the $1000 from the car? The tax department may say that their claim comes first. The client may say that the lawyer’s assets do not actually belong to him, because they are conflated with $1000 of stolen money.
Of course different legal systems may differ on this, and I am not seeking free legal advice. I just think it is interesting and a little complicated.
There are a lot of rules about secured debt and order that the liens attached, but in the case above, the tax liens would win. Tax liens are almost always in first place, especially in front of unsecured debts.
What if the stolen money was sitting in a bag on the lawyer’s desk?
If the bag o’ money was counted when reviewing his assets, then maybe. I do think someone would need to confirm ownership. How do you prove it’s yours?
But a 1k car minus 1k tax bill = 0. Ime, the tax man gets paid first.
The lien priority is the same. In the pool of unsecured creditors, a tax lien is going to have preference.
You asked who should get the money not who would[/] get the money. Do I think the tax man is going to see the money in the bag on the desk? No, I think the lawyer is going to keep it. If it is in an escrow account (not a liquidated $1000 from the lawyer’s car but a $1000 retainer the lawyer was given), the client would probably have a superior claim as that money was never the lawyer’s property at all but held in trust for a client.
Sure, if it is still in the escrow account it has nothing to do with the lawyer’s assets. In this case the lawyer removed it from an escrow account.
If the lawyer stole the money last week and bought a car for $1000 the next day?
I did ask ‘should or would’. Who actually gets it might not seem fair or even logical.
Still, how would you prove he used your 1k to buy the car?
The tax man usually. If you take assets from someone who owes the government money in many cases you assume that persons liability if you do not notify the tax man.
Most States have similar statutes
If the $ is tied to his business this may apply
http://www.state.nj.us/treasury/taxation/faqbulksale.shtml
Perhaps it would be confiscated by the police and neither party gets it. “Civil forfeiture allows police to seize — and then keep or sell — any property they allege is involved in a crime. Owners need not ever be arrested or convicted of a crime for their cash, cars, or even real estate to be taken away permanently by the government.”
So if the local police department is interested in this, wants to pump up their department funds, they can confiscate all of his remaining assets. Even if he’s only accused, and not proven guilty. What a way to fund our police departments, right?
I see the distinction using who Should get the money. There are many things the Feds forcibly take money from citizens for, by force of Gov’t. Some of those are not listed in the Constitution as reasons the Feds can tax us. Yet it happens. The Feds should be bound by the Constitution, but sometimes good intentions have permitted lawmakers look the other way when it comes to the citizens being taxed. Some argue it makes for a better outcome (the “greater good”) for the citizens and that is good enough; others argue that even if it does, it is a taxation not legally provided for.
Some would view this as a “greater good” question. Yes, the lawyer may owe 1k restitution to one individual, but theoretically, the 1k he owes to the gov’t is money owed to A LOT of people.
Some states have victim compensation funds where clients who had money wrongfully taken from client trust accounts may be able to recover their loss. It might be a more viable pathway to recover than going up against IRS/state tax department.
.
Has tths lawyer been convcted yet?
It’s a little different than law enforcement confiscating a car used in a drug deal.
Good point, @Jugulator20. My state’s bar association has a program called the Lawyers’ Fund for Client Protection. Getting money back for defrauded clients is not a slam-dunk but this program has a good reputation.
There are many scenarios of how the client could get the money back, but the simple question in the OP was who would take the $1000 between an unsecured creditor (client) and a tax lien. It’s the tax lien that would prevail.
If the $1000 is given to a court to decide, or in bankruptcy, or in an escrow account, or is still ‘the Car’ and the car needs to be impounded…all different facts. Yes, there are funds available from the bar for parties injured by crooked attorneys, but that isn’t THIS $1000, that’s like recovering insurance money and in that case the IRS may get the original $1000 and the client a $1000 from the restitution fund, thus $2000. Not the original facts or quesiton.
I took the original question as “there is $1000 and everyone knows about it. Whose claim is superior?” Then the ‘facts’ changed to be “$1000 in a bag of cash” that perhaps the authorities don’t know about.
yup.
Doesn’t matter. See #1, and get in line.
Who would? The IRS. Who should? Opinions obviously differ.