Buyer Beware – When Unclaimed Property Comes with The Deal – Andersen
Buyer Beware – When Unclaimed Property Comes with The Deal
In today’s deal environment, most private equity investors are well-versed in identifying financial, tax, and legal risks—but unclaimed property often remains a blind spot. Unclaimed property generally refers to intangible assets – such as unclaimed checks, customer credits, or unredeemed gift cards – that a company holds on behalf of others and is required by state law to report and remit after a defined period of inactivity. Because unclaimed property represents a significant and recurring source of state revenue – and is often governed by strict record-keeping and reporting rules – states have made enforcement a priority. As a result, unclaimed property routinely attracts aggressive audits and inquiries, and overlooked exposures tied to ordinary balance‑sheet items can emerge late in a transaction, materially affecting purchase price, indemnities, and post‑close obligations for both buyers and sellers.
This article highlights why unclaimed property poses frequent and often underestimated transaction risk. It summarizes the legal framework and enforcement environment driving state scrutiny, explains how unclaimed property liabilities arise and transfer in M&A transactions, and outlines practical diligence and mitigation strategies for buyers and sellers to manage exposure and avoid deal‑stage surprises.
UNCLAIMED PROPERTY BASICS
All states maintain statutory frameworks governing the reporting and remittance of abandoned or unclaimed property held by companies. Companies are generally required to escheat (i.e., report and remit to the state) intangible property once it becomes dormant (i.e., after a specified period of inactivity). These obligations apply broadly across industries and are often overlooked in routine accounting and compliance processes. Dormancy periods range from 1-5 years for common property types like the following:
• Accounts receivable credits and customer overpayments
• Unredeemed gift cards and stored value balances
• Refunds and unapplied cash
• Unclaimed dividends and unexchanged shares
• Merchandise credits and rebate balances
• Outstanding or voided checks
• Unredeemed ACH or wire payments
| Key Insight State budgets often recognize only a portion of unclaimed property as a liability, while retaining the remainder as revenue. This revenue incentive helps explain why states aggressively enforce unclaimed property laws and pursue audits to increase collections. |
Unclaimed property laws were first created to help ensure property held by companies was reunited with the rightful owners. States argue that they are in a better position to notify and reunite escheated funds than the company holding the property. State held property that is not reunited with the rightful owner is maintained and used for the states’ own or public benefit. The chart on the following page reflects how much money is at play in key states.
| State | Total Unclaimed Property | Liability/Returned Property |
| California | $14B+[i] | ~$1.39B as current liability[ii] |
| New York | $20B+[iii] | ~$633M returned in latest FY[iv] |
| Delaware | ~$426M/annually or ~6.36% of states general fund. [v] | Between $150-200M annually[vi] |
With this much money at stake, it is important to understand which state gets the property.
PRIORITY RULES
- Unclaimed property priority/sourcing rules, established in the U.S. Supreme Court in Texas v. New Jersey, dictate the specific state to which unclaimed property must be reported and remitted.
| Priority Level | Rule | Outcome |
| First Priority | Owner’s last known address is available | Property is reported to the state of the owner’s address |
| Second Priority | Owner’s address is unknown or foreign jurisdiction with no escheat provision | Property is reported to the holder’s state of incorporation |
- States in which businesses often incorporate, such as Delaware, New York, Illinois, and New Jersey have interpreted the second priority to use estimation methodologies to establish historical liability in the absence of records for the reach-back of a review (10-15 years), increasing revenue as evidenced by the amount of unclaimed property held by key states.
AUDIT REALITY
States consistently audit companies for unclaimed property non-compliance and unclaimed property reporting, and assessments can be very costly and onerous for companies. Unfortunately, the burden of proof often lies with the holder of property and most audits and state conducted reviews operate under a “guilty until proven innocent” methodology. It is not uncommon for unclaimed property examinations to last 3-7 years with assessments reaching eight figures.
For these reasons, and others, companies undergoing a merger, divestiture, or acquisition should fully understand the impact of unclaimed property obligations and consider the cost/risks associated with becoming compliant. See below for some key points of consideration and best practices.
| Key Insight States commonly outsource unclaimed property audits to specialized third-party firms. These firms routinely leverage publicly available information to invite additional client states to participate in the audit. As a result, most third-party audits ultimately involve approximately 15–20 states. |
MERGER AND ACQUISITION UNCLAIMED PROPERTY RISK FACTORS
Mergers and Acquisitions present certain unclaimed property liability risks. One major issue is that it may trigger outreach from states and jurisdictions, especially those that follow M&A news as part of their process to determine companies that may not be complying. Some risk factors include:
| M&A Unclaimed Property Risk Indicators | ||
| Category | Key Consideration | Why It Matters |
| Transaction Visibility | Details of the merger/acquisition (e.g., public company, media coverage) | Highly visible transactions increase the likelihood of state scrutiny or outreach |
| Size & Operations | Size of target (revenue, employees, geographic footprint) | Larger and more complex operations create greater exposure and audit interest |
| Filing History | Filing history of both acquirer and target across jurisdictions | States may compare internal records to identify gaps or inconsistencies in reporting |
| Compliance Status | Whether the target has been compliant over the past 10–15 years | Non-compliance over long periods can lead to significant estimated liabilities |
| Audit / State Inquiry | Whether the target is under audit or has received state outreach | States or third-party auditors may expand scope to include the acquiring entity or the acquired entities |
LIABILITY AND ACQUISTION TYPES
Beyond the risk of outreach and or audit notices from the states, the type of acquisition will be a big factor in determining how much liability the acquirer is taking on, if at all. Below are the two common acquisition types and their associated risks:
| ASSET PURCHASE Lower Risk Profile Liability Treatment Generally not assumed by buyer Key Risks • Dormant property may exist in acquired balances • Reporting past-due items may trigger audits • Potential interest and penalties What to Watch • AR/AP balances • Gift cards / credits • Outstanding checks Mitigation • Explicitly assign liability to seller in agreement • Review balances pre-close • Identify dormant property early | STOCK PURCHASE Higher Risk Profile Liability Treatment Generally fully assumed (all historical liabilities) Key Risks • Historical non-compliance • Multi-state exposure • Large audit assessments What to Watch • Filing history (10–15 years) • Prior audits / VDAs • Record availability Mitigation • Perform detailed diligence • Quantify exposure • Adjust purchase price • Include indemnities, reserves, and reps & warranties |
| Key Insight Escheatment exposure varies significantly by industry. As a best practice, companies should consult with a specialist to identify and assess potential risk areas prior to a transaction. Additionally, many states offer voluntary disclosure or amnesty programs that can mitigate liability – often eliminating interest and penalties, which can be a strategic option to consider. |
DUE DILIGENCE BEST PRACTICES
It’s recommended that companies undergo the appropriate diligence to help determine if the target company has significant known, or unknown, unclaimed property risk. Below is a checklist:
| POLICY & COMPLIANCE REVIEW ☐ Review target’s unclaimed property policies and procedures (last 13–15 years) ☐ Understand industry-specific unclaimed property types relevant to the target ☐ Review filing history across jurisdictions (last 13–15 years) ☐ Obtain details of prior audits, VDAs, or state inquiries RISK ASSESSMENT ☐ Conduct a risk assessment to evaluate potential exposure ☐ Identify jurisdictions with heightened enforcement risk ☐ Evaluate potential estimation exposure due to data gaps OPERATIONAL & THIRD-PARTY CONSIDERATIONS ☐ Identify use of third-party administrators (payroll, benefits, shareholder services, etc.) ☐ Confirm availability of records and support post-transaction DATA & RECORD AVAILABILITY ☐ Confirm access to key records (bank statements, check registers, reconciliations, AR aging) ☐ Ensure records are available for as far back as possible (10–15+ years) KEY RISK: Failure to maintain adequate records may result in significant estimated liabilities. |
TARGET ISSUE RED FLAGS
Acquiring companies should consider the type of industry, the size of the company being acquired, the states in which the company operates, accounting systems (and changes), and the general complexity of operations and organizational structure when assessing the likelihood of material unclaimed property risk. Below are some red flags:
| HIGH-RISK JURISDICTIONS 🚩 Incorporated or operating in DE, CA, NY, NJ, IL, TX, PA, FL 🚩 Subject to state questionnaires or self-audit programs COMPLIANCE HISTORY 🚩 Currently under audit, VDA, or state outreach 🚩 Limited or inconsistent filing history 🚩 Lack of formal policies and procedures OPERATIONAL COMPLEXITY 🚩 Decentralized systems or recent ERP changes 🚩 Complex organizational structure 🚩 Significant M&A history DATA & RECORD INTEGRITY 🚩 Record retention gaps 🚩 Inability to support historical transactions 🚩 Prior clean-ups impacting balances TRANSACTION & BALANCE RISK 🚩 Large customer base → aged credits 🚩 Large vendor base → uncashed checks 🚩 Write-off policies (AR credits / checks) 🚩 Complex accounting practices INDUSTRY-SPECIFIC EXPOSURE 🚩 Gift cards in non-exempt states (DE, NY, NJ) 🚩 High volume consumer transactions The presence of multiple indicators above may significantly increase the likelihood of material unclaimed property exposure. |
POST ACQUISITION
Below are some post-acquisition best practices you can choose to employ if you acquire a company that has material unclaimed property risk:
| COMPLIANCE STRATEGY ✅ Evaluate voluntary compliance options (VDAs) ✅ Assess multi-state audit risk EXPOSURE MITIGATION ✅ Quantify interest and penalty exposure ✅ Prioritize high-risk jurisdictions ✅ Address historical non-compliance TRANSACTION ITEMS ✅ Resolve unexchanged shares ✅ Address uncashed consideration OPERATIONAL CONTINUITY ✅ Ensure knowledge transfer prior to any staff eliminations ✅ Retain key records ✅ Assign ownership of UP processes |
DIVESTITURES
- Unclaimed property is also a concern when divesting an entity or assets. Understanding unclaimed property risk is equally as important from the seller side to ensure that unclaimed property concerns do not sour the deal, affect the sale price, or result in retained liabilities.
SUMMARY
Unclaimed property should not be an afterthought in any transaction. Engaging an experienced advisor early in the process can help identify and quantify exposure, avoiding surprises that could impact purchase price, deal terms, or post-close liabilities. Without the right guidance, historical risk can inadvertently be inherited – particularly in stock transactions where liabilities follow the entity. For private equity firms, where portfolio companies are often acquired with a view toward resale, properly addressing unclaimed property is critical, as unresolved issues can compound over time and create friction in future exits.
- To learn more about Andersen’s unclaimed property services, contact us or visit Andersen.com
| MIKE KENEHANManaging Director mike.kenehan@Andersen.com | RICARDO GARCIAManaging Director ricardo.garcia@Andersen.com | ANNE RACHKOManaging Director anne.rachko@Andersen.com |
[i] California State Controller’s Office, Controller Malia M. Cohen Announces National Unclaimed Property Day (Apr. 29, 2025), https://www.sco.ca.gov/eo_pressrel_26836.html (reporting approximately $14 billion in unclaimed property held by the State).
[ii] State of California, Annual Comprehensive Financial Report for the Fiscal Year Ended June 30, 2024 (reporting unclaimed property liabilities of approximately $1.39 billion); see also id. at 245 (noting that a liability is recorded only for the estimated amount expected to be reclaimed).
[iii] New York Office of the State Comptroller, Office of Unclaimed Funds, https://www.osc.ny.gov/unclaimed-funds (last visited Mar. 27, 2026) (stating that the State is holding more than $20 billion in unclaimed funds for rightful owners).
[iv] New York Office of the State Comptroller, Office of Unclaimed Funds Annual Report for State Fiscal Year 2024–2025, https://www.osc.ny.gov/files/unclaimed-funds/resources/2025/pdf/annual-report-sfy-2024-25.pdf (reporting $633 million returned to owners).
[v] Delaware Office of Management and Budget, Fiscal Year 2025 Budget, https://omb.delaware.gov/budget/fy2025/; Delaware Department of Finance, Budget and Financial Reports (reporting abandoned property revenue of approximately $426 million, net of amounts returned to rightful owners).
[vi] Delaware Department of Finance, Unclaimed Property Money Match Program Returns… (Sept. 9, 2025), https://news.delaware.gov/2025/09/09/unclaimed-property-money-match-program-returns-almost-400000-automatically-to-thousands-of-delaware-taxpayers/ (stating that Delaware returns approximately $150–$200 million annually to owners).