What is Offshore Asset Protection?

By Daniel A. Perry, Esq.

When we hear about offshore asset protection and offshore banking, many people tend to conjure up images of the Panama Papers scandal and Jordan Belfort hiding money overseas.

As mentioned in prior articles, you should never transfer assets with the intent to defraud a creditor. Offshore asset protection does not include hiding money to avoid an obligation to pay U.S. taxes. In fact, the act of transferring assets with the intent to defraud a creditor can subject you to both civil and criminal penalties.

This rule is even more important when it comes to offshore asset protection. There are countless cases in which individuals engaged in offshore asset protection and were sentenced to jail terms until these individuals repatriated their offshore assets back to the U.S.

However, you can properly and legally protect your assets through offshore asset protection and Offshore Trusts — a strategy used by millions of Americans each year.

Judgment Creditors and Offshore Asset Protection

The primary benefit of offshore asset protection is that foreign jurisdictions do not recognize U.S. court judgments. This results in judgment creditors being required to relitigate their cases in foreign jurisdictions.

In many foreign jurisdictions, judgment creditors have even greater difficulty reaching your assets because they are not permitted to create contingency fee arrangements with attorneys. This may prevent U.S. judgment creditors from pursuing their judgments in foreign jurisdictions due to creditors being unable or unwilling to pursue their judgments because it is not cost effective.

In addition to the difficulty in pursuing foreign judgments, judgment creditors are typically:

• Required to retain local counsel in the foreign jurisdiction
• Required to provide a higher level of proof in civil cases
• Treated less favorably than trust defendants, such as in areas like Nevis and the Cook Islands

For instance, in the U.S., we have a preponderance of the evidence standard in many civil cases. However, there are many foreign jurisdictions which require proof beyond a reasonable doubt for a Plaintiff to recover in a civil action. This is the standard used in the U.S. for criminal cases. For this reason, it may be difficult for a judgment creditor to enforce their judgment in a foreign jurisdiction to collect from foreign assets.

More importantly, the statute of limitations in foreign jurisdictions can create a large roadblock for judgment creditors to relitigate their claims. In many foreign jurisdictions, there is a prohibition on actions against trusts which have been in existence for a certain period of time.

In Nevis, for example, judgment creditors are prohibited from taking actions against trusts that have been in existence for one year. In other foreign jurisdictions, the Plaintiff is required to post a bond covering the Defendant’s legal fees and the court costs to file a legal action against a trust defendant. Many foreign jurisdictions require the losing party to pay the other party’s legal fees.

Finally, many foreign jurisdictions allow trusts to reclassify assets in other jurisdictions. For example, let’s say that a U.S. judgment creditor files a lawsuit in Nevis to pursue an action against a Nevis Asset Protection Trust. Even if the one-year statute of limitation has not expired, the trust defendant could reclassify the trust assets to the Cook Islands causing the judgment creditor to pursue a legal action in the Cook Islands. This is not an attempt to defraud a creditor — as the trust is already in existence.

Let’s look at an example. John Doe engages in comprehensive asset protection strategy, including offshore asset protection planning. John establishes a Nevis, LLC which holds $1 million in assets. He also establishes the John Doe Nevis Trust and titles the membership interest in the Nevis, LLC in the John Doe Nevis Trust.

Many years later, a creditor sues John’s business in the United States and obtains a $1 million judgment. This judgment creditor discovers the $1 million in Nevis and attempts to collect its judgment. However, the judgment creditor discovers that it will need to relitigate the original claim and will be required to post a $2 million bond. In addition, the judgment creditor discovers that the one-year statute of limitations would prevent the creditor from succeeding on the new lawsuit against John’s Trust.

As a result, the judgment creditor decides to pursue other assets and abandons its claim against the Nevis LLC and the Nevis Asset Protection Trust.

Massive Benefits of Offshore Asset Protection Planning

Asset protection in offshore jurisdictions benefits many Americans by protecting their assets from future unknown creditors. However, the purpose of offshore asset protection is not to hide all your assets overseas. As discussed in prior articles, 30% of your assets should be difficult to obtain and 40% of your assets should be impossible to access. In addition, you should have 30% of your assets available for creditors and your obligations.

Asset protection is not about making yourself insolvent, but it is about protecting your wealth. Knowingly rendering yourself insolvent can result in your asset protection planning not working in the manner intended.

For more information regarding the proper asset protection strategy for your family, please contact our office at (513) 241-0400 or use our contact form to schedule a time to speak with one of our attorneys!