Some types of personal property have little value to anyone except a debtor, but the property is extremely valuable to the debtor. Although the same property has little market value in the hands of a creditor, the creditor may still seek to levy on this unique personal property in order to pressure the debtor to pay all or part of a judgment.
An example I recently experienced was a client who ran a sales business primarily though the internet. The business had no inventory, and all sales were paid in advance so the business had no receivables. The business’s most valuable asset was the domain name of its website. If a creditor levied on the domain name the creditor could close the website and business would grind to a stop. Even though the website domain had little market value in the creditor’s hand it could be a primary target of collection efforts.
I suggested that this business sell the domain name to a related business entity and then lease the domain from the third party entity. In order to help deflect allegations of fraudulent conveyance I suggested that there be a purchase of the domain name for fair market value. An appraisal of the domain name would be helpful to establish an arms length sales price. Because the lease interest in the domain would also be an asset subject to levy, the lease should contain provisions that make it unattractive for creditors. In this type of web based business a the domain name is similar to the importance of an office building owned by a traditional business. These types of assets should not be titled in the name of operating companies that could incur future liabilities.
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