How to Hide Assets from Creditors the Legal Way
Once a creditor wins a judgment against you from a U.S. court, there is very little you can do to legally hide your assets from your creditor. The judgment-creditor has a number of remedies he or she can use. They use strategies to find, and then determine the value of your assets. Then they assess which ones they can use to satisfy your obligation.
After winning a lawsuit against you, your creditor will likely file a Motion for Examination of Judgment Debtor. This permits him or her to question you about your assets. Since you will be under oath, you have to answer truthfully. If you’re caught in a lie, the judge who issued the judgment can find you in contempt. You would find yourself facing a hefty fine or even jail time.
However, you can still legally protect your assets from a judgment by a U.S. court. For this, you must be willing to go offshore. Each offshore jurisdiction is a sovereign country. Many have asset protection legislation that generally favor foreign trust settlors and/or LLC founders. Establishing an offshore LLC and/or asset protection trust may be one of the only ways you can protect your assets from a U.S. court judgment.
Examination of Judgment Debtor
When a U.S. court issues a judgment, it does not mean the creditor is automatically handed a debtor’s assets as payment. It is not the duty of the court to ‘go after’ a debtor’s assets to satisfy a debt. Judgment in hand, a creditor must now go about the task of unearthing a debtor’s assets. Hidden or otherwise, they need to determine which of them are exempt from garnishment or attachment. They must find out which they can use to satisfy the debt.
A creditor who has won a judgment against you will typically file a Motion for Examination of Judgment Debtor so he or she can question you about your assets and properties. Keep in mind that you will be under oath, and are therefore legally bound to be truthful in your answers. A shrewd creditor will ask you about assets and properties you currently possess. This may include real estate, bank accounts, vehicles, shares and bonds. They’ll also ask about assets you have yet to receive (such as an insurance payment, commissions or royalties). You have to answer all questions asked of you during a judgment debtor exam honestly and accurately.
This is why it’s virtually impossible to hide your assets from a creditor with a judgment against you. U.S. courts will not hand over your assets to a creditor on a silver platter. They do, however, assist the creditor in obtaining relief or recompense through procedures such as the judgment debtor examination. Keep in mind, however, that even under oath, you are under no obligation to volunteer any information unless asked.
Offshore Asset Protection
Your creditor may find out about your offshore trust or LLC during a judgment debtor exam. But as long as it’s set up properly in an advantageous offshore jurisdiction, your assets remain out of reach. Offshore jurisdictions in countries like Nevis, Belize or the Cook Islands have strong asset protection legislation. All of these jurisdictions recently strengthened their laws. They have tightened regulations regarding setting up, administering and protecting various asset protection vehicles established on their shores.
These countries will not automatically enforce a judgment (or charging order). If it has been issued by a foreign court they will ignore it. There is little to no relief against a settlor of a trust or a member of an LLC properly set up within the jurisdiction. No asset protection plan is truly 100 percent impenetrable, of course. But a creditor will face a tedious uphill battle for your assets secured in an offshore asset protection entity.
Domestic Asset Protection: Weak
When you use asset protection vehicle, such as a trust or an LLC after a creditor wins a judgment against you, that asset transfer will almost certainly be challenged. A ruling of fraudulent conveyance will likely be raised against you. Keep in mind this is only a civil matter, not a criminal one.
This simply means you willfully transferred the assets with the intent of placing them beyond the reach of your creditor. You’re squelching on a debt and the courts will not like that. If the assets are in the US, such a transfer will be deemed fraudulent and disallowed. That ruling makes it possible for your creditor to attach the assets you transferred to the domestic trust or LLC.
If you transferred the assets to a domestic trust or LLC, you might as well hand them over to your judgment creditor. Domestic asset protection vehicles have weak defenses against a fraudulent conveyance rulings. This is especially true if you transferred assets to them after a creditor secured a judgment against you. This is because these asset protection vehicles are under U.S. jurisdiction, which tend to be more creditor-friendly.
Offshore Asset Protection: Strong
Offshore asset protection instruments are just the opposite. In the proper jurisdiction, they tend to strongly favor and protect the trust settlor and the LLC member. To be perfectly clear, these countries have crafted legislation to keep your money away from creditors. And, in practice, these tools do just that. If a you choose to set up a trust or LLC there, these entities are regulated according to its own laws as a sovereign country. Foreign judgments are not recognized in countries such as Cook Islands, Nevis and Belize. Their trust and LLC laws are specifically designed to keep creditors out of your pockets.
Different offshore jurisdictions have varying laws and regulations regarding fraudulent conveyance. Belize will simply not entertain a case of fraudulent transfer against a properly established Belize asset protection trust – period. Nevis provides a one- to two-year window of opportunity for a creditor to bring a fraudulent conveyance case against a trust settlor or LLC founder. They begin the count from the date when the creditor’s cause of action accrued, and not when the judgment was issued.
Statute of Limitations: You Win
Imagine if you will: you transferred assets to a Cook Islands or Nevis trust after a judgment has been rendered against you. Your creditor finds out about this and decides to file a fraudulent conveyance case against you in a Cook Islands or Nevis court.
Has it it has been longer than one year since the cause of action has accrued (meaning the event that led to the creditor filing a case against you in a U.S. court, such as a divorce or an accident)? If so, Cook Islands and Nevis courts will throw the fraudulent transfer case out the window. The issue is not whether or not your creditor has a valid claim, but that he or she has simply ran out of time to go after the assets in your Cook Islands or Nevis trust.
Offshore Asset Protection Laws
Even if the assets were placed into the trust and a case was brought within the allowed timeframe, the creditor would still have to face significant hurdles. In Belize, there is no statute of limitations on fraudulent conveyance for certain types of judgments, including divorce, succession rights in inheritance cases or claims of insolvency.
Specifically Part I, Section 7, sub-section (6) states the following:
(6) Where a trust is created under the law of Belize, the Court shall not vary it or set it aside or recognize the validity of any claim against the trust property pursuant to the law of another jurisdiction or the order of a court of another jurisdiction in respect to –
(a) the personal and proprietary consequences of marriage
or the termination of marriage;
(b) succession rights (whether testate or intestate) including
the fixed shares of spouses or relatives; or
(c) the claims of creditors in an insolvency.
Strongest: Cook Islands and Nevis
In the Cook Islands and Nevis, there are even broader protective measures. ALL claims of fraudulent conveyance must be shown beyond a reasonable doubt and must be brought before the courts within within one year or two years from the cause-of-action – i.e. the reason that the lawsuit was originally filed. Then, as, stated, even if brought within the timeframe, the opponent must prove their case beyond reasonable doubt. And that proof must show that the assets were moved into the trust, not just to keep them from ANY creditor, but from that PARTICULAR creditor.
It’s crucial to be aware of your options and even more crucial to act quickly. You can protect your assets from judgments, but only if you know what legal options are available to you.
You Win: Your Opponent Pays
Few but the most determined of creditors end up pursuing a case against a debtor all the way to an offshore court when they discover how utterly expensive the undertaking can be. Many offshore jurisdictions require a new trial on their shores and under their existing laws. If your opponent wants to take a Belize LLC founder to trial in a Belizean court, they should be prepared to put down a deposit of BZ $50,000 (approximately US $25,000) or 50 percent of the amount of your claim, whichever is higher. In Nevis, you are required to deposit the sum of EC $270,000 (US $100,000) in a Nevis bank before a trial involving a settlor of a Nevis trust can even begin.
In addition, a creditor is also required to hire a local attorney, who will not accept work on a contingency basis. Another deposit will thus be required, against which the services of the local lawyer will be charged as the trial progresses. Finally, in most of these offshore jurisdictions, the loser in a trial is required to pay for all, or part, of the legal expenses of the winning party. Faced with these upfront costs, not to mention plane fare, an extended hotel stay during the trial, and other personal daily expenses, it’s little wonder that most creditors will think long and hard about mounting a case against a creditor in an offshore court.
It’s always better to think ahead and set up an asset protection plan before any lawsuit is filed against you; and certainly before a creditor wins a judgment against you in a courtroom. But even if you’re caught unaware by these events, you can still take certain steps that will not simply allow you to legally hide your assets from creditors but to legally protect your assets from creditors.
We have discussed the difference between hiding assets and actually protecting them. Protection works. Hiding doesn’t. The strongest protection in actual court cases has been demonstrated through the use of offshore legal tools. Transferring your assets to an offshore trust or LLC might be enough to deter even the most dogged and cunning of predatory creditors. The limited window of opportunity to pursue a fraudulent conveyance case in an offshore jurisdiction as well as the creditor’s expense of mounting a new trial may just be what will tip the balance in your favor against a frivolous claim on your hard-earned assets.