Hiding Assets from Creditors
Hiding assets is an asset protection strategy that makes it more difficult for a potential creditor to find out what you own. Privacy can be an essential part of your overall financial and asset protection plan.
Benefits of Hiding Assets
There are three reasons to hide assets:
- Make yourself a less attractive target to a potential claimant.
- Reduce the risk of collection activity post-judgment.
- Keep your personal wealth out of public records.
Hiding assets, by itself, does not actually protect the assets from creditors. Asset protection involves taking advantage of federal and state statutes to set up your finances in a way that makes it very difficult, if not impossible, for a creditor to collect. The best asset protection strategies do not depend on whether or not the assets are hidden.
Hiding Assets from Potential Creditors
Hiding assets from the general public makes it less likely that you become the target of a lawsuit.
Suppose a person has a potential claim against you and is considering a lawsuit. They will need to decide whether it makes financial sense to pursue litigation. Lawsuits are expensive. In most circumstances, a potential creditor will only pursue litigation if the creditor thinks they can not only prevail, but also ultimately collect from you. If the creditor is unable to find out anything about what you own, then the creditor may think you would not have much to collect.
Also consider the point of view of the creditor’s attorney. Many plaintiff attorneys work on a contingency basis. That means that the client does not pay the attorney in advance, but instead, the attorney will get a certain percentage of the amount that is collected from the judgment debtor.
Contingency-based attorneys do not simply take every case that comes across their desk. Instead, the attorneys are selective: they only take cases where they think they can win and where there is money to collect. It is unlikely that the attorney will agree to spend years on a lawsuit when there does not appear to be any money available for collection.
Hiding your assets from public records, therefore, makes it less likely that the potential creditor can find legal counsel willing to take on their case.
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Hiding Assets After a Judgment
If a creditor obtains a monetary judgment against you, then the creditor will have broad power to find out what you own. Florida law allows creditors to use the civil discovery process to obtain information and documents about your financial situation. There are few limits on the information that a creditor can obtain. As a result, it is very difficult to hide assets from a determined creditor after a judgment.
For example, creditors can serve you and your financial institution with subpoenas for documents or can take your deposition. They can even request financial information from your spouse, whether or not they are on the actual judgment.
Still, many creditors do not have unlimited resources and time to find out what you own. Often a creditor will serve you initial discovery requests after the judgment is entered, but may not pursue collection for years if it does not appear that there are any assets that are easily collectible.
Particularly, with smaller judgments, creditors are less likely to invest in the legal fees associated with extensive discovery efforts.
Keeping Personal Information Private
Some people are not motivated by asset protection, but instead value privacy for its own sake. Hiding assets allows people seeking privacy to minimize the amount of their financial information available online.
A well-funded, determined investigator may be able to find out another person’s assets no matter how well hidden. Technology allows search engines to search through millions of documents in databases all over the world. But many techniques can still effectively hide financial information from the general public.
Hiding Assets in Divorce
A common motivation for hiding assets in a divorce case is to make an equitable distribution of assets more favorable. After all, a court cannot take into account what it does not know about when determining what division of assets is favorable.
However, failing to disclose all assets to the spouse and the Court can result in civil sanctions. In addition, the Court will likely penalize the wrongdoer, resulting in a division less favorable than if the assets were never hidden in the first place. We do not recommend clients attempt to hide assets in their divorce cases.
Asset protection strategies are still effective in defending against collection of an equitable distribution judgment.
Hiding Assets from Child Support
We occasionally get inquiries about how to hide assets from child support obligations. Hiding assets is not effective. A court can impute income onto the person hiding assets, which renders the strategy moot. Failing to disclose assets and income in child support cases could lead to civil sanctions. Wilful deception or making false statements could lead to criminal sanctions. We therefore never recommend hiding assets in a child support context.
How to Hide Your Assets from Creditors
Here are some of the best ways you can hide your assets:
- Form a privacy trust.
- Use a land trust to hide real estate.
- Form an LLC in a state that does not make ownership public.
- Set up an offshore trust
- Maintain funds in an offshore bank account.
A privacy trust is a legal entity that is designed to hide the identity of the owner of certain property, whether it be financial accounts, real estate, or businesses. Internet databases allow private investigators to search through thousands of local and state databases for information related to their search target. But a privacy trust can take a person’s name out of the databases and away from the public eye.
When used, the privacy trust should hold all financial accounts. Keeping financial accounts in the name of the trust prevents a financial institution, such as a bank or brokerage, from knowing the beneficial ownership behind the accounts. Instead, the privacy trust will only disclose the name of its trustee.
In addition to financial accounts, a privacy trust can own your business interests to help shield them from the public eye.
The key feature of a privacy trust is to have a corporate trustee. A corporate trustee does not manage the assets. Instead, a corporate trustee of a privacy trust does three things:
- Holds legal title to the trust assets.
- Executes documents required to be signed by the trustee.
- Carries out instructions given by you, such as for investment or distribution.
Having a corporate trustee of a privacy trust allows you, as beneficiary, to maintain control and direction over the trust assets while staying out of the public records.
Privacy trusts are revocable and can be combined with estate planning objectives. Note that a privacy trust, by itself, does not provide any asset protection. The tool would need to be combined with other asset protection techniques if there is a potential creditor.
A land trust is a special type of trust under Florida law that allows a person to hide ownership of their real property. A land trust has two important roles:
- Trustee. The trustee hold legal title to the property.
- Beneficiary. The beneficiary holds all beneficial interest in the property.
The name of the trustee is public, but the name of the beneficiary is not. With a land trust, you create the trust and serve as beneficiary. A third party serves as trustee.
A land trust is a type of privacy trust that is specifically authorized by Florida statute 689.071. Just like with a general privacy trust, the trustee has no investment or management role. By law, the trustee can only follow the beneficiary’s instructions regarding the property.
Unlike a regular privacy trust, the land trust can only hold legal title to real estate—it cannot own anything else. No bank accounts, no investments, no other personal property.
Instead of a third-party trustee, you can form an LLC in a state that does not publicize company ownership to serve as trustee of the land trust. This allows you to keep direct control over the property while still remaining out of the public county records.
Most states make public certain information about LLCs:
- Name of the manager.
- Name and address of the registered agent.
- Address of the LLC.
- A copy of the Articles of Organization.
Florida, for example, does not provide any privacy to LLC registrations or ownership. All of this information is freely available through the Florida Division of Corporations (sunbiz).
The disclosure of this information means that anyone can easily discover who owns an LLC.
A few states, however, do not make this information available to the general public. In these states, it is very difficult for people to find out who owns or manages a particular LLC.
Here are the states that make LLC ownership completely anonymous and private:
- New Mexico
For a company doing business in Florida, an advanced strategy would be to form a Florida LLC and list the manager as an LLC from one of these four states, such as Delaware for example. While a person could see that the manager of the Florida LLC is the Delaware LLC, they would not be able to find out who is behind the Delaware LLC.
An offshore trust allows a person to hide their assets in a privacy trust with strong asset protection features. In particular, Cook Islands trusts are well-regarded for extremely debtor-friendly asset protection laws that protect trust assets from creditors of the beneficiary.
First, just like a privacy trust, the ownership of trust property is held in the name of the offshore trustee company, not the name of the beneficiary. In addition, Cook Islands law makes it a crime to disclose information about a particular trust to a third party.
The best strategy to hide assets from creditors using an offshore trust would be to combine a Cook Islands and a Nevis LLC. In this structure, the offshore trust owns the Nevis LLC, which then own the assets. This setup allows the U.S. beneficiary to control the assets as manager of the Nevis LLC, while still enjoying the asset protection of Cook Islands trust law. The manager of the Nevis LLC could be an anonymous domestic LLC owned by the U.S. individual.
About the Author
Gideon Alper specializes in asset protection planning for individuals and their families.
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