One of the best ways to protect wealth you simply can't afford to lose in a frivolous lawsuit is with an offshore trust.
However, there's a right way—and a wrong way—to form an offshore trust. And a Florida resident named Mary Morris is the newest poster child on how NOT to form and use an offshore trust. Yet, in spite of her mistakes, her offshore trust saved her a cool $1.5 million.
You may remember Mary from an earlier post a few months ago. At the time, Mary was languishing in the Palm Beach County Jail. It looked as if she might remain there indefinitely unless she came up with $2.5 million for child support payments and attorneys' fees.
Now Mary's out of jail, and it cost her only $1 million…in spite of very poor asset protection planning.
Here's a brief summary of the very convoluted story:
Back in 2001, Mary and then-husband Leland Morris divorced. Mary got an extra $1.5 million for giving Leland custody of their two children. But, if Mary contested the agreement, she had to repay the bonus. Two years later, Mary did exactly that. But proving contracts you sign do have meaning, the judge in the case ordered Mary to pay Leland $1.8 million—the bonus plus $300,000 of attorneys' fees.
Mary didn't pay. And, she didn't bother showing up for a court hearing to explain why. The judge issued a criminal contempt citation, ordering her to jail until she came up with the money.
Before deputies could pick her up, Mary disappeared…for almost five years. But in January 2008, Mary reemerged. The judge in the case promptly ordered her jailed. Subsequently, Mary and Leland's attorneys held a series of meetings on how to resolve the impasse. They finally came to an agreement. If Mary could somehow persuade the Cook Islands trustee to release $1 million, Leland agreed not to seek the additional $1.5 million.
Mary contacted the trustee and asked it to convey $1 million to satisfy the agreement. And, guess what? The trustee complied and transferred the $1 million to the custody of the court. Mary is now free and presumably a lot less contrary than before.
Don't Go to Jail to Protect Your Assets
If nothing else, Mary's tale demonstrates that an offshore trust may be more effective at protecting your assets than in keeping you out of jail. If you don't give up control over your assets, or form the trust after a liability arises, you may have some explaining to do in front of a judge.
In these situations, there’s a risk that a U.S. court could order you to repatriate the trust assets for your creditor’s benefit. If you fail to do so, the court could cite you for contempt, and in extreme cases, order that you be jailed until you comply. That's what happened in Mary's case.
In spite of her protests to the contrary, Mary persuaded the Cook Islands trustee to make a payment to satisfy a domestic judgment. (Of course, the trustee will deny this, and state that the payment was merely a prudent exercise of its discretionary authority.)
Fortunately, by avoiding the abusive circumstances in Mary's case, an offshore trust can protect your assets—and you won't go to jail. Indeed, of all the instruments available for asset protection, an offshore trust is one of the best.
Copyright © 2008 by Mark Nestmann
(An earlier version of this post was published by The Sovereign Society.)