Asset Protection After a Lawsuit is Filed
Protecting assets from judgements can be challenging enough in today’s increasingly litigious world. Sometimes it seems, under US laws, there is no shortage of remedies that creditors or plaintiffs can resort to attacking a hapless defendant. Moreover, with the ever-expanding theories of legal liability, the deck gets increasingly stacked to the benefit of the legal predator. All of this leads to an increased need for the business person have an effective strategies. But can you engage in asset protection after a lawsuit is filed?
Asset protection becomes doubly difficult when you, as the defendant, try to secure your assets from a creditor after a lawsuit has been brought against you in court. The ruling that will be rendered against you in this instance would likely be one of fraudulent conveyance. Even though it has the hypothetically scary “f” word in the clause, fraudulent conveyance, also known as fraudulent transfer, is merely a civil matter, not a criminal one. It could just have easily been called an “avoidable conveyance” or an “avoidable transfer.” This means you knowingly and willfully placed your assets beyond the reach of the court, and therefore your creditors, in order to avoid meeting your obligations.
Oftentimes when this happens, the only viable option available to you would be to establish an asset protection trust and/or an LLC (Limited Liability Company) in an offshore jurisdiction. The bottom line is that is that it is difficult to protect assets domestically after the process server has showed up at your doorstep. If you want to protect assets after the fact, you will likely have to do it offshore.
3 Reasons for Offshore Asset Protection
There are three reasons why taking the step to protect assets offshore can discourage even the most dogged creditor from pursuing a case against you. As drastic as it may appear to some, doing it right can keep someone from getting their hands on your assets. It is as close to bulletproof protection as this world offers.
First, in most foreign courts the fraudulent conveyance ruling will be strictly limited to a very narrow timeframe. In some countries, they will not recognize them at all. Because of the way foreign courts are set up, it’s possible for the statute of limitations to run out before a creditor can successfully mount a case against a debtor with assets in an offshore instrument.
Second, offshore jurisdictions are not under US laws. Therefore, they are free to require creditors to launch a second trial on their shores to enforce their claim. This is especially the case if the funds are in a trust and/or LLC established within their jurisdiction.
Third, many foreign courts demand a heavy burden of proof, such as ”beyond a reasonable doubt” (e.g. 98% vs 2%). This can be difficult so as to be nearly impossible to attain. Most U.S. civil rulings, conversely, are made based on a “preponderance of the evidence” (e.g. 51% vs. 49%).
Asset Protection: Statute of Limitations
It cannot be emphasized enough that setting up an asset protection plan, whether domestic or offshore, is best done before a lawsuit is filed against you. Preferably, several years before any case is brought against you. Nevertheless, if you’re caught off guard and forced to transfer your assets to an offshore jurisdiction after a case has been filed against you, you still some major allies in your corner. One is time. Another is a set of statutes intended to keep creditors at bay. Yet another is a range of legal tools that create Grand Canyon-sized caverns between your creditors and your assets.
Regarding time, many offshore locations have limited windows of time wherein a creditor can obtain a fraudulent transfer ruling against a settlor or founder of a trust or LLC member deemed properly established within the jurisdiction. It’s important at this point to be clear on the difference between a plaintiff’s cause of action and the lawsuit that this same plaintiff brings against you in a court of law. A cause of action is the reason behind a plaintiff’s lawsuit. It could be a divorce, an accident, a business deal turned sour, or other type of similar occurrence where a plaintiff perceives a grievance. Based on this cause of action, a plaintiff demands what he or she believes to be just recompense or retribution by bringing a lawsuit against you in court.
Cook Islands & Nevis
In the Cook Islands and Nevis, a transfer to an asset protection vehicle is not deemed fraudulent if it is made one year after a creditor’s cause of action has occurred. In other words, let’s say a creditor files a lawsuit against you one year after a breach of contract or an accident. You had transferred assets to a Nevis asset protection trust or a Cook Islands asset protection trust after you learned of the pending lawsuit against you. That transfer is safe and legal – and hence, the assets are untouchable – under Nevis or Cook Islands laws. The big secret is to make that the assets inside of the trust are held in a jurisdiction other than the one that made the ruling and that does not recognize foreign judgments.
Other offshore jurisdictions instruments have similar strict windows of opportunity with regards to fraudulent transfer rulings. Belize even goes one step further by not recognizing fraudulent transfer associated with a Belize Trust – at all. Once you find out there is a lawsuit against you that may threaten the security of your assets, you must act quickly to safeguard them with an offshore asset protection strategy utilizing the most debtor-friendly laws.
If a creditor proves in a US court that you transferred assets to your offshore trust or LLC specifically to prevent them from being used to satisfy an obligation, a charging order is issued by the court allowing the creditor to theoretically collect on the debt. Since the assets you transferred offshore were deemed part of a fraudulent conveyance, according to the US court, the local courts claim that they are fair game and a creditor can go after them to satisfy your obligation.
However, even if the charging order is valid and brought before a foreign court within the specified window of opportunity, certain offshore jurisdictions will not automatically enforce the terms of a charging order issued by that foreign court. As sovereign countries with their own laws, they will naturally insist that their laws be followed, as indeed the United States do. So, when a foreign charging order is brought to its doorstep, their local law, not US law, applies. Many offshore jurisdictions will require a creditor to bring the case to trial once again, this time under that country’s own laws.
The bottom line is that once you are sued it is not too late to take action to keep creditors from seizing your assets. It is best to act before hand. But even if you procrastinate until the “bad thing” happens, there are international strategies that can get the job done. There are several more reasons why going offshore is one of the few methods that will still work to protect assets after a lawsuit. You can click the prior link to learn even more.