Once you lose a US court judgment, it’s nearly impossible to legally hide your assets from creditors. Creditors use several methods to find and value your assets. And after they’ve done so, it’s only a matter of time before they claim a portion of your wealth.
Here’s the deal: you can’t readily “hide” assets from creditors, but you can protect your assets from them. Setting up wealth defense measures, especially offshore trusts, places your assets out of creditors’ reach. In fact, a properly established trust is so powerful that a US judge can’t even break through its defenses.
In this article, we’ll share how to hide money from creditors the legal way – by protecting them through an asset protection trust:
- Why Hiding Assets from Creditors Doesn’t Work
- How an Examination of Judgment Debtor Uncovers Your Assets
- Asset Protection Strategies Work Better Than Hiding Your Money
- Offshore Asset Protection Trusts: How They Work
- Offshore Asset Protection Trusts in Action
- Domestic Asset Protection: Weak
- Offshore Asset Protection: Strong
Why Hiding Assets from Creditors Doesn’t Work
When you’re worried about being sued, your first instinct might be to hide your money. After all, if a creditor doesn’t know that something exists, they can’t go after it, right? Wrong.
When you lose a lawsuit, your creditor can file a Motion for Examination of Judgment Debtor. This permits them to question you about your assets. Since you will be under oath, you must answer truthfully. Telling a lie can earn you a contempt of court charge that adds to your financial woes or lands you in jail.
Even cryptocurrency can’t be hidden from creditors. Today, most cryptocurrency is held in accounts that function like investment portfolios. A Motion for Examination of Judgment Debtor can uncover these accounts, rendering the assets within them vulnerable. Furthermore, the blockchain creates an immutable ledger of every cryptocurrency transaction. The second you buy a crypto coin, there’s permanent evidence of your ownership.
Ultimately, the main flaw of hiding assets is that it’s not a protective measure; it’s a delaying tactic. Think of it like hiding your house key under one of those fake rocks in the front yard. It might fool someone for a moment, but anyone who knows what to look for will find it quickly. And once they do, there’s nothing stopping them from walking right through your front door. Similarly, the second a creditor knows about unprotected assets, they’re as good as gone.
How an Examination of Judgment Debtor Uncovers Your Assets
When a US court issues a judgment, the creditor doesn’t automatically receive a debtor’s assets as payment. The creditor must determine which assets they can and cannot take from you.
To do this, the creditor who won a judgment against you will typically file a Motion for Examination of Judgment Debtor. This enables them to put you under oath and ask about your assets and properties. A shrewd creditor will ask 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 insurance payouts, commissions, or royalties. You have to honestly and accurately answer all questions asked of you during a judgment debtor exam. However, it’s worth noting that even under oath, you’re not required to volunteer any information unless specifically asked.
<h3>Other Ways Creditors Can Find Your Assets
Creditors can use more than Examinations of Judgment Debtor to locate your assets. Here are a few other ways they can find your hidden wealth:
- Asset Search Companies: Creditors often hire private investigators or asset search companies to track down assets. These companies use bank account and real estate searches to learn where you’re hiding your money.
- Public Records: Creditors can access public records to see if you own real estate, cars, or other valuable assets. They can then go after these assets to satisfy a judgment.
- Forensic Accounting: If a creditor suspects that you’ve hidden assets, they may hire forensic accountants. These financial investigators dig through your financial history, including tax returns, bank statements, and credit reports, to uncover your wealth.
With all the tools creditors have, it’s virtually impossible to hide assets from a creditor with a judgment against you.
Asset Protection Strategies Work Better Than Hiding Your Money
Given the many asset recovery tools creditors have, it’s safe to assume your assets will be found. Once you’ve accepted that a creditor will find your money, you can create a strategy to keep it safe.
Here are a few ways that people protect their money:
- Domestic trusts
- Offshore trusts
- Business structures
- Retirement accounts
In the decades we’ve spent in asset protection, only one method has worked every single time: the offshore asset protection trust. These foreign trusts create a nearly impenetrable barrier between a creditor and your assets.
Offshore Asset Protection Trusts: How They Work
Offshore asset protection trusts create a legal separation between you and your assets. A creditor can’t claim something you don’t own. So, assets that are properly placed in an offshore trust are beyond their reach. But how exactly is this possible? The answer: the trustee company.
When you create an asset protection trust, you surrender control of your assets to a trustee. Once you’ve done this, the assets are no longer under the control of your local courts. How do you know this is safe? It is because trustee companies are governed by strict laws and your trust deed. Both ensure that the trustee company only distributes and uses assets exactly how you intend.
You can further strengthen an offshore trust by integrating an LLC into it. In other words, your offshore trust owns an offshore LLC. This tactic allows you to keep certain assets under the LLC structure within the trust. During a legal battle, your trustee can assume the management role of the LLC. Then, when legal matters have calmed down, you can resume your role as the LLC manager.
By using the built-in advantages of an offshore trust, you can protect your money from just about anyone. Creditors, lawyers, and even ex-spouses can’t lay a finger on your assets so long as they’re in a quality offshore trust.
Offshore Asset Protection Trusts in Action
Picture this: You’ve just lost a lawsuit to a creditor. Thus, a judge has given them the green light to go after your assets. But you’re not concerned in the least. You’ve placed your most valuable belongings in an LLC-enhanced offshore trust.
Your creditor may discover your offshore trust or LLC during a judgment debtor exam. But as long as it’s set up properly in the right offshore jurisdiction, your assets are out of reach. An offshore jurisdiction, such as the Cook Islands, Belize, or Nevis, has no obligation to enforce a judgment from your home country. If a creditor comes to your trustee and waves the judgment in their face, your trustee won’t hand them a cent.
If your creditor takes things further and files a lawsuit in your trust’s location, they’ll likely not fare any better. Offshore jurisdictions in countries like Nevis, Belize, and the Cook Islands have strong asset protection legislation. Creditors who file a lawsuit in these countries will face a costly uphill battle. Most of the time, they’ll see you have an offshore trust and give up. The cost of filing a suit and the low odds of winning are deterrent enough.
Keep in mind that this level of protection is unique to offshore trusts. Domestic asset protection trusts can be useful, but they have key weaknesses in lawsuits.
Domestic Asset Protection: Weak
When you transfer assets to a trust after losing a lawsuit, the transfer will likely be challenged. Your creditor may attempt to label the transfer as a fraudulent conveyance, meaning you transferred the assets solely to avoid paying them.
Transferring the assets to a domestic trust or LLC is like handing them directly to your judgment creditor. Domestic asset protection vehicles offer little defense against fraudulent conveyance rulings. This is especially true if you transferred assets to your trust after a creditor secured a judgment against you.
Once a court deems a transfer to be a fraudulent conveyance, your domestic trust can be instantly compromised. The creditor can typically reach into your LLC or trust and begin seizing assets.
Offshore Asset Protection: Strong
Offshore asset protection strategies, on the other hand, routinely hold strong when a creditor files a fraudulent conveyance case. The laws in the best asset protection jurisdictions heavily favor grantors and LLC members. Here’s an example of these laws in action.
In Belize, courts won’t entertain a fraudulent transfer case against a properly established asset protection trust. Even if a creditor comes armed with the best lawyers in the world, Belize won’t give them the time of day. This is even true in cases of divorce, succession rights in inheritance cases, or claims of insolvency. The law that upholds these protections is as follows:
Part I, Section 7, sub-section (6)
(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.
Belize isn’t the only country that has placed barriers between creditors and a successful fraudulent conveyance case. Nevis only gives creditors a one-to-two-year window to file a motion. Though that might seem like a long time, it’s actually quite short. The clock starts ticking when the cause of action happens, not when the creditor wins the judgment. By the time a creditor wins a domestic case and begins to take your assets, the statute of limitations may have already expired. The Cook Islands has a similar limitation on claim filing timelines.
To be clear, the trusts each of these jurisdictions protect assets right away. It is simply that some of them leave a short timeframe for a creditor to issue a challenge—a challenge the creditor will likely lose.
These offshore trust advantages are just the tip of the iceberg. Here are a few more ways these trusts outclass other asset protection methods:
Trust Settlor-Friendly Laws
Let’s take a look at how these additional settlor-friendly laws work. In the Cook Islands and Nevis, ALL fraudulent conveyance claims must be proven beyond a reasonable doubt. This is the level of proof required for criminal cases in the United States.
Additionally, creditors must prove that the transfer was made solely to keep assets out of their hands. If there’s even a slight doubt that the transfer was done to protect assets from another creditor, your creditor’s case could be doomed. As you might imagine, most people can’t produce the evidence needed to win cases against trusts in these jurisdictions.
Legal Opponents Pay to Lose
Only the most determined creditors pursue a case against a debtor in an offshore court. But even their enthusiasm wavers when faced with the complexity of filing a lawsuit. Many offshore jurisdictions require creditors to start a new trial on their shores under their laws. Unfortunately for ambitious creditors, starting a new lawsuit comes with some serious fees.
If your opponent wants to take a Belize LLC founder to trial in a Belizean court, they must put down a deposit. The base deposit is BZ $50,000 (approximately US $25,000) or 50% of the amount of your claim, whichever is higher. In Nevis, creditors must deposit the sum of EC $270,000 (US $100,000) with the Nevis courts before filing a case against a trust settlor.
Creditors are also required to hire a local attorney. Unlike attorneys in the states, these attorneys will not work for contingency. At this point, your creditor has to pay at least two hefty deposits, all to win a case where the odds are stacked against them. And if that weren’t deterrent enough, the loser in a trial must pay for all, or part, of the winning party’s legal expenses.
Faced with these upfront costs, most creditors will think long and hard before mounting a case against someone with an offshore trust. And that’s before you add in plane fare, an extended hotel stay during the trial, and other personal expenses.
Don’t Hide Your Assets, Protect Them
Hiding assets is rarely effective, but protecting them properly works. Setting up an asset protection strategy with offshore trusts puts your wealth out of creditors’ reach. Even if your creditor is willing to pursue you to the ends of the Earth, these offshore jurisdictions won’t let them get to you.
Stop trying to hide your assets from creditors and start protecting them. Click the button below to schedule a consultation with one of our asset protection experts today!
