Asset Protection Strategies

Asset protection is a combination of legal and organizational actions that make the assets inaccessible for third parties. At the same time, the owner of the assets retains the following opportunities:

• To control the assets;
• To make profits from the;
• To dispose of them (sell them, hand them down, give them away, etc.).

The potential adversaries may be the following ones:

• Corrupt government officials;
• Counteragents in commercial deals;
• Business partners and company co-owners;
• Insiders who have access to confidential information;
• ‘Predatory claimant’ who make profits from suing people and companies (many lawsuits in the USA in particular are filed on far-fetched pretexts);
• Criminals such as racketeers, blackmailers, and raiders;
• Members of the family: ex-spouses, careless children, and so on.  

The owner of the assets can also be his/ her own adversary. Some asset protection schemes are designed to protect the assets from their owner’s possible mental disorders, gambling addiction, alcoholism, drug addiction, and other vices. Protecting your assets from senile dementia is another opportunity that you could consider.

Choice of jurisdiction

It is highly desirable that the jurisdiction whose institutions you are going to use for asset protection purposes should have the following five qualities:

1. Political stability;
2. An independent judiciary and the proper enforcement of judicial decisions;
3. A favorable taxation system;
4. A high level of confidentiality;
5. Well-developed legislation that has the following characteristics:

• Does not recognize court decisions made in other countries;
• Does not give too much time for legal challenges;
• Does not allow the attorneys to be paid on contingency basis so that they would not want to win a case at any cost;
• Has a clear and unambiguous notion of fraudulent transfer of assets.

The jurisdiction of the island of Nevis (part of the Federation of St Kitts and Nevis in the Caribbean) is highly secure as it meets all the criteria mentioned above. There are a few other similar jurisdictions too.

Good asset protection strategies

1. Lower the risk of appearing before judges. You have to do the following to achieve the goal:

• Do not participate in dubious transactions with counterparties that do not inspire confidence;
• Do not establish business companies where your liability would be unlimited;
• Abide by the law in general.

2. Buy an insurance policy. Even if you are found guilty, the insurance will cover at least part of the costs. The insurance premiums that you have to pay on a regular basis are going to be much smaller than the amount of money that you might lose if you lost the case.
3. Make a marriage contract. A very useful instrument to have in case of divorce. The contract can indicate what property is commonly owned and what property belongs to each spouse personally.
4. Make use of the homestead exemption. In some countries, your only place of dwelling cannot be taken away from you in any case. Unfortunately, nor all countries apply this rule but some do. Normally, you have to meet the following conditions to qualify for the homestead exemption:

• Permanently reside in the house/ apartment;
• Hove no other residential property registered in your name in the country.

The property value threshold can be rather high depending on the country (you can keep a mansion in some places). Please use this instrument with caution and consult a lawyer.

5. Encumber the assets with friendly debt obligations. This will make your assets unattractive for an attack. If the assets are attacked, your friendly creditor will be the senior creditor.
6. Create a corporate structure. The use of a company will serve asset protection purposes in two ways:

• It will separate the assets of the company from the assets of its owner;
• Company assets will be protected from the personal obligations of its owner.

If you are going to use a corporate structure, you have to follow all the associated requirements. In particular:

• The company has to have a bank account;
• Financial records have to be kept with care;
• Meetings of company shareholders and directors have to be help regularly and their minutes have to be stored at the company office;
• Corporate assets should not be blended with personal assets of the company owners.

Why is this important? Because somebody might try to ‘pierce the corporate veil’ in an attempt to prove that the company is fictitious. If the company documentation is not in good order, if no shareholder/ director meetings are held, and if personal bank accounts are used instead of a corporate one, it is going to be obvious for the judge that yours is not an active company. Instead, it’s a company created to protect the assets from creditors. Thus, you may lose corporate protection and, consequently, your assets

A corporate structure registered in an offshore jurisdiction can bring you additional advantages that include the following ones:

• Their legislations are adjusted to asset protection purposes;
• They don’t charge taxes. Instead, they collect fixed annual fees;
• They have lax reporting requirements;
• They preserve your confidentiality: their company registered are closed to the public (in some cases);
• They don’t recognize foreign counts’ decisions;
• In some jurisdictions (such as Nevis, for example), the plaintiff has to make a large deposit if he/ she lays a claim against a trust or a foundation. If the plaintiff loses the case, the deposit is not returned.

7. Create an offshore trust. A trust is an agreement between the settlor and the trustee. In accordance with the agreement, the trustee manages the assets put in trust in the interest of the trust beneficiaries. Alternatively, he/ she can manage the assets for a certain purpose. The assets are detached from the settlor, which builds a solid barrier against ill-wishers. At the same time, the risk of losing the assets tends to zero. It is important to create an irrevocable trust. Otherwise, the trust may be deemed fictitious and the assets will be considered the property of the settlor, not the trust. Thus, they will become unprotected.
8. Create a private foundation. The main difference between a trust and a foundation is that the latter is a legal entity that has to be registered with the state authorities. A private foundation does not have owners but the Board of Governors manages the assets put into the foundation in the interest of a group of beneficiaries. 

Conclusion

As practice shows, asset protection strategies prove more efficient if action is taken before problems arise. For this reason, it is critically important to structure your property in advance. You can choose legal schemes that can efficiently protect your assets from potential attacks.

But even if problems have already arisen, you have to fight to the end and try to minimize the losses. There are always chances for a favorable outcome. What you should not do is try to destroy the assets under dispute to prevent the claimant from taking hold of them. This would be a criminal offense.