Asset Protection Through Offshore Banking & Corporation Formation | Personal Finance

By TimothyReederstein
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The term "asset protection" was first used within the wealth management and estate planning community. Protecting your assets offshore simply involves creating one or more offshore companies in combination with foundations or trusts to limit the ability for creditors to attack you and seize your assets.

The process of protecting your assets, including the use of offshore asset protection works by modifying the definition of the asset from an asset that can be easily taken and sold, to a different asset that the creditor does not legally have the right to take and sell.

It is like being the beneficiary of a trust, stock or having a membership interest in an LLC. This in turn restricts the creditors right to only the debtor's interest in that entity. When someone with debt is challenged in court, they must have a solid case, based on evidence that supports any inquiries as to whether or not assets were transferred fraudulently.

Entities are formed during offshore asset protection in foreign jurisdictions that have more favorable debtor laws. This effectively prevents a person's creditor from being able to bring a lawsuit against them because their assets are out of the creditor's reach.

The attorneys, bankers and foreign countries convince frightened individuals to spend untold amounts of money creating these trusts and companies in their jurisdictions because they have better debtor laws than the U.S.

However, even with these debt friendly laws people are not always safe from their creditors, because foreign laws are set up to protect the debtors because they overrule trust law. These laws can't hold up to public policy and when challenged in court no offshore asset protection trusts has ever prevented a U.S. court from ruling against the assets or the person who is in debt. Often the person is given a court order to return the assets to this jurisdiction or face charges of contempt of court.

Many people also believe that a foreign country used for asset protection will not enforce a U.S. judgment against them. However, this is not an entirely accurate argument. Often it comes down to the fact of whether a U.S. court has jurisdiction over the individual debtor, because they are a resident of the country. This voids the assets transferred to the offshore asset protection entity, because under state and federal law it is generally illegal to transfer assets to the offshore asset protection entity barring few exceptions anyway. The ins and outs of these rules are very complicated.

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