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Uncovering Hidden Assets

This article is more than 10 years old.

In mid-October, Forbes.com published an article “The Rich and Unfaithful,” that described the results of a study of 433 people, whose wealth ranked between $1 million to over $10 million. One interesting finding was that 56% of women said they had hidden or protected assets, while 36% of the men said they had done so. Also, those with more than $10 million were three times as likely to have hidden or protected assets.

Most surprising was the fact that very few of these self-professed, asset-hiders had obtained the legal (read, “above-board”) documents--a pre- or postnuptial agreement--to shield those assets. In the absence of a valid nuptial contract excluding assets or income (or for that matter, debt or liabilities) from distribution upon formal separation, divorce or death; everything accumulated during the marriage--or even before, if you live in say, Connecticut or Massachusetts, or any other “kitchen sink” state--is fair game and can be divvied up as the parties agree or a judge or master can order. That said, exactly what were these 433 souls referring to when they discussed hiding or protecting assets?

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These folks were pointing to what is euphemistically called “wealth preservation strategies,” whereby a person with access to lawyers and functionaries around the globe, sets about seeding various Caribbean and other island nations or European enclaves with offshore accounts or asset protection trusts to keep a creditor’s hands out of their pockets. These potential creditors include spouses, or soon to be exes.

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Specifically, offshore asset protection trusts (OAPTs), are popular protection vehicles because the settler (the “hider”) can make himself the beneficiary of this same trust, and thus enjoy his money (the corpus) free from third-party claims, consistent with trust-friendly foreign laws, which don’t recognize the American concept of “fraudulent transfer.” Therefore, once established, OAPTs are nearly impossible to collect against, even with a valid judgment from the U.S. What’s more, OAPTs produce generous revenues for their host nations by commanding relatively high fees for the services provided by local banks and professionals. Therefore, the countries are keen to keep the trust money flowing in and the creditors out.

Some “hiders” opt to send their money offshore the old fashion way, in accounts that they establish in person. They physically visit the tax havens of their choice (e.g., the Channel Islands, Jersey or Guernsey--famous for more than their cows) using a second passport. Belize, Grenada, Nevis and St. Kitts, for instance, are famous for having a “citizenship industry” to complement their tax haven status. On the other hand, relying on ancestry (e.g., German, Irish, Israeli, Latvian or Spanish) is a common means to secure a second passport.

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However obtained, using a secret second passport, the sneaky spouse can visit his or her money without detection via normal channels, i.e., reviewing stamps and visas within their U.S. passport. Of course, a paramour or a business partner with a foreign passport and a little motivation can transact business for a “friend” intent on putting money offshore for future use after divorcing his/her partner.

Some who are not inclined to international travel can simply arrange for a debit card attached to an offshore bank account established over the Internet. This arrangement allows for traceless, taxless spending and depositing. Of course, calling cards or SIM cards purchased discreetly, in cash, allow one to call anywhere in the world, typically from a private cellphone, to monitor this type of offshore account.

One problem for the would-be hider: The U.S. requires full disclosure of any movement of money offshore. If you think you might be dealing with an offshore issue in your life, scrutinize your partner’s 1040, Schedule B, carefully. Also, make sure you request and inspect pertinent tax forms, e.g., Form TD F 90-22.1; Form 56; Form 709; Form 926; Form 3520; Form 3520 and Customs Form 4790.

Nevertheless, plenty of opportunities to hide money remain at home as well. Keep a keen eye on trusts, family-limited partnerships, holding companies and even the seemingly benign charitable foundation. What’s more, equity reduction plans (ERPs) allow the sneaky to remove equity from assets in plain sight. Using an ERP, the owner remains on title to the real estate or business, whilst a third party depletes its value, typically through a bogus mortgage or some other arrangement whereby the asset is used as collateral or security for a debt. Of course, these transactions can be unwound the minute the divorce is over and the “hider” desires access to the full, unencumbered value of his/her property.

What do you do if you suspect your spouse has hidden assets? Take matters into your own hands. Hire a lawyer who is used to working with global asset searchers and who is comfortable with digital technology. You will want someone able to look at (and read) all the data on the hider’s computer, phone, PDA and like devices. Just as hiding assets has become nearly effortless due to the digital ease with which one can move money via a mouse click; those very movements leave digital residue, that can, if collected quickly and professionally, reveal where the funds went, or at least the moment they left your safe, domestic accounts.

Moreover, take advantage of U.S. laws requiring full financial disclosure and the performance of fiduciary duties between spouses, requiring fair and honest dealing during divorce or separation. Family courts across the land are familiar with the concept of “fraudulent transfers” and can make the harmed spouse “whole” through a cornucopia of legal and equitable remedies, ranging from constructive trusts to the outright of seizure of pension funds.

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Finally, if you find that your spouse hid assets and you received less than your fair share when you divorced due to his/her nefarious “wealth preservation strategies,” you are--in most states--allowed, within a reasonable time of your fraud discovery, to file a motion to set aside your judgment or agreement. A cautionary tale is the California case of Rossi v. Rossi, decided in 2001, where the judge found that Denise De Rossi intentionally hid her $1.3 million lottery winnings from her husband, Thomas. Finding Denise guilty of fraud, the court awarded the entire jackpot to Thomas. So there. For the Denise De Rossi’s of the world, you are on notice. Sir Walter Scott nailed it: Oh what a tangled web we weave, when first we practice to deceive!

Written by Marlene M. Browne, Esq.

For more information about marriage, divorce and family law, read Boomer's Guide to Divorce and The Divorce Process: Empowerment Through Knowledge by family law attorney Marlene M. Browne, Esq.

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