Unclaimed property, explained simply
Dormancy periods generally range from one to five years depending on the state and type of property. Property is reported to the state of the owner’s last known address or, if unknown, the state of incorporation, often Delaware, which is active in audits.
States can audit many years of records and estimate liabilities, and in a stock purchase the exposure for past years passes to the buyer.
Life of an unclaimed balance
ProcessAudit lookbacks can span many years, so small balances accumulate into a meaningful liability.
Worked example
Diligence finds $0.12 million of old customer credit balances and uncashed vendor checks going back seven years that were never reported to any state. The buyer treats the estimated liability as a debt-like item and asks the seller to file voluntary disclosures before closing.
Alder Creek Manufacturing, Inc. is a fictional company. All figures are illustrative.
A note
This page explains general concepts and is not legal or tax advice. Rules vary by jurisdiction and change over time.
Why it matters in a deal
Unclaimed property is often overlooked. In a stock purchase, the liability for past years transfers to the buyer.
Red flags
- Old credit balances in the receivables ageing
- Uncashed checks written back to income
- No unclaimed property filings in any state