Offshore Asset Protection Planning

Asset Protection is usually associated with Offshore planning . In fact, a number of small countries make a business out of it. And, most debtor havens are Offshore Financial Centers as well.  Small, wealthy countries, such as Luxembourg and Switzerland , compete with smaller, poorer countries such as those in the Caribbean Commonwealth (CARICOM ), pacific island countries such as Nauru , Vanuatu and colonies and protectorate countries who are members of the British Commonwealth .

All of these jurisdictions offer the same thing: Their courts do not enforce U.S. judgments. So, should a creditor wish to recover assets, he must do so overseas even though the creditor has been awarded a judgment in the U.S. There is no chance of the creditor being successful because these jurisdictions have padded their laws with provisions such as a short statute of limitations and restrictive fraudulent transfer laws . This offshore planning benefits the debtor.

Additionally, these jurisdictions have strict confidentiality laws making it a criminal offense for any financial institution or trust company located in their jurisdiction to divulge information about their clients without a court order from them.

The intention of these jurisdictions is to be very friendly to the debtor in order to attract asset protection business. In fact, these jurisdictions compete for the best laws.  And the courts in these jurisdictions are debtor friendly as a matter of course, making decisions that keep creditors from reaching assets even in situations involving securities and consumer fraud.  Because it would be bad for business, it's rare that a court in these jurisdictions reaches a decision in favor of a creditor. This makes it favorable for offshore planning.

However, just as these offshore courts are not respectful of laws and judgments of U.S. courts, the courts in the U.S. do not have to respect the laws nor judgments of these Financial Centers either. As long as U.S. courts have jurisdiction over the physical person of a debtor and throw can him/her in jail for contempt, it can also order the debtor to repatriate his/her assets from the havens to satisfy the creditor's judgment. So, in order for offshore planning to be successful with the debtor's assets offshore, the debtor must remove himself from the reach of U.S. courts as well. However, while this might work for some, it is unworkable for the majority of debtors because leaving the country entails leaving behind families, businesses and other comforts.

The strength of Offshore Financial Centers is that persons and things physically located in these havens are not subject to U.S. Court judgments and Orders. Offshore courts  are not bound by the Constitution of the U.S. nor are they interested in U.S. court judgments.  In fact, they pride themselves in repulsing attempts of U.S. courts when they attempt to assert judgments offshore.

Along with judgments, offshore courts ignore discovery orders of U.S. courts. If an offshore trust is subpoenaed, the subpoena will be ignored and there isn't anything a U.S. court can do about it. Which means a creditor will find that evidence will be difficult to obtain in an offshore haven because the creditor would deny a witness to testify issues involving transactions, or the trust will either refuse to produce the documents or have them destroyed.  Even if the debtor consents to discovery, the process is very time consuming in offshore havens and would costs a lot of money. 

Another problem faced by creditors is the difficulty of a U.S. court asserting jurisdiction over an offshore person or offshore entity, which is important if the offshore person is a necessary party to a lawsuit (meaning, the lawsuit won't go forward if that party isn't brought into the case.)

While there are many ways to set up Offshore Trust, LLC's, IBC's and the like, it is important to note that if you are a US citizen, you are taxed on your worldwide income from wherever source derived. Be careful as many offshore providers are not up on the latest US tax rules.