By: Attorney Meghan P. MacKelly, Post Judgment Litigation Supervisor
Obtaining a judgment against a debtor is only a piece of the puzzle. Without knowledge of the debtor’s finances, enforcing a judgment can be challenging. One of the best tools available for learning about a judgment debtor’s assets is the Supplemental Examination. While Wisconsin is not necessarily creditor friendly, recent developments have increased the likelihood of collecting judgments against debtors by expanding the usefulness of Supplemental Examinations.
Supplemental Examinations, generally. A Supplemental Examination is a post-judgment remedy that allows creditors to obtain information about a debtor’s assets and financial obligations. Once a Supplemental Examination is served upon a judgment debtor, the creditor can conduct a sworn, yet informal, examination of the debtor before a court commissioner. The creditor may ask personal and financial questions that assist in determining the debtor’s ability to pay the judgment. In addition to acquiring address, telephone and place of employment, the Supplemental Examination is used to discover the debtor’s property, income, bank accounts, and other asset-related information, including debts and obligations.
Typically, Supplemental Examinations only involve the debtors in their capacity as individuals or business entities. But this is no longer true when the debtor is married or has a related business entity.
Supplemental Examinations of Non-Judgment Spouses. Although the spouse may not be the judgment debtor, a couple’s marital property assets are available to satisfy judgments when the debt is incurred for family purposes. To allow creditors to accurately determine a debtor’s assets, Wisconsin allows Supplemental Examinations of the non-judgment spouse.
In Courtyard Condominium Association, Inc. v. Draper, the 2001 Wisconsin Court of Appeals held that a non-judgment spouse cannot refuse a Supplemental Examination. In the Courtyard case, the debtor’s husband refused a Supplemental Examination after the judgment debtor herself denied any knowledge of the couple’s assets. The Court of Appeals reasoned that an examination of the non-judgment spouse may be the only way a creditor can determine the amount and location of marital property. This policy also prevents a debtor from avoiding his or her obligations by transferring assets from one spouse to another.
Supplemental Examinations of “Sister” Entities. As of December 7, 2010, judgment creditors not only have the right to a Supplemental Examination of a non-judgment spouse, but the right to a Supplemental Examination has also expanded to a debtor’s “sister” entity. In Crown Castle USA, Inc. v. Orion Construction Group, the Wisconsin Court of Appeals held that if the judgment debtor is a business entity, a creditor may conduct a Supplemental Examination of a debtor’s related business.
The Crown Castle court reasoned that Supplemental Examinations of “sister” companies will help prevent a debtor from making itself “judgment-proof” by transferring its assets to a related entity. Just as an individual should not be able to avoid its legal obligations by transferring assets to a spouse, a business should not be able to transfer its assets to another corporate entity to avoid its creditors.
For example, in Crown Castle, the debtor business testified in a Supplemental Examination that despite previously having millions in annual sales, it had virtually no sales in its most recent year. When the debtor’s “sister” company refused to respond to Supplemental Examination questions about its profitability, the trial court required it to produce the requested financial information. Consequently, the creditor discovered that the related entity had millions of dollars in receipts during the prior year, yet it had no sales. Without the ability to take the Supplemental Examination of the related business, the debtor in Crown Castle may have succeeded in fraudulently avoiding its obligations.
Accordingly, Supplemental Examinations are more useful than ever. This increased ability to obtain information about a judgment debtor’s assets and other obligations is pivotal to post judgment collection efforts. Based on increased availability of financial information, creditors can more easily and accurately ascertain whether to garnish wages, enter into a payment arrangement, attach property, or determine a more suitable post-judgment remedy.