There are numerous unpredictable risks to your personal assets. Most concerning are those associated with unexpected lawsuits (liability suits, divorce, creditor claims etc.). Having a solid asset protection plan in place can be a lifesaver when these unfortunate situations arise which threaten your valuable wealth. The best way to ensure your assets are well protected is to be prepared with a comprehensive asset protection plan well in advance. However, the reality is that many do not make the necessary preparations, and are left with their assets fully exposed in the midst of a lawsuit.
It is at this point that they quickly ask the question: “is it still possible to protect my assets after a lawsuit has been filed against me?”
In this article, we will provide you with the answers to this question, and help you to understand the tools at your disposal to protect your assets from lawsuits.
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You have undoubtedly worked hard to get where you are today, and in the process, you may have amassed a sizeable asset portfolio. The frightening fact is that if you do not take the steps required to properly protect these assets, you could lose them all in the blink of an eye.
Asset protection is just that: using financial tools and planning to provide adequate protection to your assets. This makes them safer from the dangers of divorce, bankruptcy, and macro risks such as economic crises, currency devaluation, etc.
There are different methods to protect assets. It is good to make use of a combination of tools to provide diversified and well-balanced protection. By far the most powerful and established asset protection vehicles are offshore Asset Protection Trusts (APTs).
Asset Protection Trusts, as the name suggests, are special types of trusts which are constructed in such a way as to provide maximum ring-fencing and protection to the assets which are held inside them.
They exist both domestically and offshore; however, offshore asset protection trusts in specialised jurisdictions such as Cook Islands and Nevis have shown to provide much stronger asset protection than domestic APTs.
As such, this is the most highly recommended asset protection vehicle, along with which other secondary methods can be used (offshore bank accounts, offshore companies, foundations, IRAs, etc.).
We live in an increasingly litigious society where more and more people are having their wealth seized by greedy hands. As such, anyone with a reasonable net worth who doesn’t want to see their assets unfairly taken from them can benefit from asset protection.
There are, of course, certain categories of people who are at a greater risk, and therefore sound asset protection plans are even more vital for them. This primarily applies to individuals who are in professions with a disproportionately large risk of being sued, such as physicians, attorneys, structural engineers, and business owners.
Younger people who have recently inherited a sizeable wealth are also often targeted due to their inexperience and lack of protection. It is therefore vital for these types of individuals to seek out the expert guidance they need to set up a proper asset protection strategy.
The number one rule for effective asset protection is that the earlier you act, the better. It is significantly better to take the steps to set up an asset protection strategy long before trouble hits.
The major issue with trying to protect your assets after a lawsuit has already been filed against you (or even after you suspect a lawsuit is going to be filed against you soon), is that there is a good chance of the transactions being deemed as “fraudulent conveyance” by the courts.
Fraudulent conveyance, also called fraudulent transfer, is defined as an illegal or unfair transfer of assets with the intention to place them out of reach of a creditor who has a legal claim to them.
This effectively means that the later you wait to take action to protect your assets, the more chance you have of the courts ruling your attempts as void, and therefore forcing you to reverse the transactions and ‘pay up’.
It is even easier for the courts to do this if you have chosen to use domestic asset protection vehicles, as they are bound by local court rulings.
It should be clear by now that the best time to protect your assets is right now, not after a lawsuit is filed. With that being said, the reality is that many people have not actively taken the necessary steps early. They may find themselves in a situation where they need to quickly protect their assets after a lawsuit has already been filed.
The good news is that it is still possible to save your assets after a lawsuit has been filed against you if you act swiftly and strategically.
The best, and probably only viable way to accomplish this is to make use of a good offshore asset protection vehicle. This could either be with the use of an offshore LLC and/or an offshore asset protection trust in the right foreign jurisdiction.
We have explained why it is almost impossible to adequately protect your assets domestically after a lawsuit has been filed, which is why you will need to make use of an appropriate offshore vehicle.
The major advantage of an offshore APT in a protective foreign jurisdiction like Cook Islands or Nevis, is that they both apply a very short statute of limitations (typically 1 – 2 years depending on the specific situation).
What this means is that the claimant will have to file the case against you in the foreign jurisdiction within this short window of opportunity of you having transferred your assets, otherwise it will be deemed invalid by the court.
Along with this is the fact that these countries are “sovereign jurisdictions”, meaning they do not recognise foreign court orders. Therefore, even if after transferring your assets to the offshore APT, a domestic US court deems the transaction to be that of fraudulent conveyance and issues a charging order for the debt to be returned to the creditor, such an order will be deemed invalid by the foreign jurisdiction.
The creditor will then have to file a separate legal case in the foreign jurisdiction itself. This takes additional time, money, and hassle, and is likely to be enough of a deterrent as it is.
Furthermore, even if the creditor does go through with pursuing the case in the offshore jurisdiction itself, the countries mentioned have extremely powerful protective legislature governing asset protection trusts, which make it difficult for the assets to be successfully claimed.
While it is much better to act sooner rather than later, there are still ways to protect your assets after a lawsuit is filed against you. You are not helpless, and should do whatever you can to secure your wealth. The best way to accomplish this is to make use of proven offshore asset protection vehicles, such as a Cook Islands or Nevis asset protection trust, to swiftly move your assets to safety.
Unfortunately, there are no guarantees that such a strategy will work every time. It all depends on the specific circumstances and how soon you are able to act. Even these powerful asset protection tools lose some of their effectiveness the later you act, and it is possible your accounts could be frozen or assets taken before you are able to establish the offshore trust.
Due to the complexity and sensitive nature of these strategies, it is best to immediately seek expert guidance from a professional with experience in these matters. They can help you determine the best steps to take, and how to implement them as quickly and accurately as possible.
Without a customised legal strategy, you put yourself at risk.
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*Note for U.S. citizens: US citizens are limited in their tax reduction possibilities due to FATCA and CFC laws. Opening an offshore company can increase privacy and asset protection, but you can not eliminate your taxes without giving up your citizenship. If you are a US citizen you are obligated to pay taxes on all worldwide income. Read more here about FATCA and CFC laws.
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