Pursue him, but not knock him down. O.J has clearly had wise financial counsel, and for many years. Choices he made to secure his future, such as building up a large pension fund, are fortuitously securing him against his creditors today. Other moves may be putting even his remaining money beyond the reach of the Goldmans and the Browns.
The actions that O.J. is known to have taken appear to be entirely legal. But there’s a smudgier side to asset protection that outsiders rarely see. Money and property can be slipped into foreign trusts, never to be seen again, or locked into family limited partnerships that creditors can’t crack.
There are some defensible uses of asset-protection plans. A meticulous doctor, for example, might worry that one disputed decision could bury her under a catastrophic malpractice suit. An entrepreneur might be shocked by a frivolous lawsuit filed against a friend. They don’t want their lives or their businesses left exposed. So they stash some money in hidy-holes, sometimes in countries that don’t enforce judgments awarded by U.S. or other foreign courts. For this service, clients pay lawyers $15,000 to $30,000 a pop, plus $2,000 to $7,000 a year in maintenance fees.
But let’s face it: many asset protectors are playing a dirtier game. They’re laundering money, evading taxes, hiding assets in divorce cases, cheating business partners or ducking out on legitimate debts. Initiates whisper knowingly about the Cook Islands, the Caymans, Liechtenstein, Gibraltar, Belize, Costa Rica, Guernsey, Vanuatu and Turks and Caicos (look ’em up).
Partnership ploys: One popular plaything today: a family limited partnership that acquires your business or investments. Often you retain a small interest–just 1 or 2 percent. The rest of the ownership rights are transferred to limited partners–say, your children. But you’re the general partner, so you keep control.
Used this way, partnerships can be legitimate tax-planning tools. But they’re also debt-evasion schemes. After winning a judgment, a creditor might be able to acquire a partnership interest. And then what? Nothing compels you to distribute partnership money. All the creditor holds is the doughnut’s hole.
Some debt evaders, however, think that’s not nearly safe enough. So they transfer their partnership interests into a foreign trust, to be managed on behalf of the beneficiaries. That can make you effectively judgmentproof. The foreign trustee controls the assets, and the trustee isn’t subject to suit.
Read my lips: foreign trusts are not tax shelters. You owe U.S. income and estate taxes that are often no different from what you’d pay if you kept those trusts at home, says Vernon Jacobs of Research Press in Prairie Village, Kans., who publishes The Jacobs Report on Asset Protection Strategies. The raison d’Etre is lawsuit avoidance, not tax avoidance.
Or so they say. In practice, many an artful dodger hides his or her assets under a thicket of trusts and foreign corporations. The lawyer may say, with a wink and a nod, ““Remember to pay your taxes, tee-hee, because these are assets the IRS doesn’t know you own.’’ Naturally, remembrance comes hard. To jog you a bit, Congress has passed new reporting rules for foreign trusts, plus penalties for failing to abide by them.
Secret foreign bank accounts are popular, too. One outfit touting ““untraceable and untouchable’’ Austrian accounts will open them even under fantasy names. ““If you would like to be a Lord, Knight, Prince or any other form of dignitary, now is your chance!’’ a cheesy-looking handout says. How about El Supremo Cheat?
For asset protection to work, users have to plan ahead and choose advisers carefully. You face nothing but trouble if you move money once a claim seems probable.
As Exhibit A, I give you the case of Dr. Mohammed Yunus of Daytona Beach, Fla., accused by a judge of trying to hide assets during a divorce. Attorney David Tedder, who has been active on the asset-protection lecture circuit, helped Yunus set up a number of trusts in what the divorce judge characterized as a ““devious attempt to sequester marital assets beyond the reach of the wife.’’ Subsequently, Yunus sued Tedder, alleging that Tedder–against orders–lent much of the money unsecured to various business entities that Tedder controlled. Yunus, who eventually dropped the suit, didn’t return calls. Tedder couldn’t be reached.
Simple dodges: There are many simpler ways of avoiding creditors, as O.J. knows. For example, he holds a $4.1 million pension fund–which is unreachable by lawyers but which he can add to and use in retirement at will, says Chicago bankruptcy attorney Keith Shapiro of Holleb & Coff. (In this respect, O.J. lucked out by living in California. Some other states let creditors seize any pension-fund withdrawals in excess of what’s needed for basic living expenses.) Cash-value life insurance may also be exempt.
Some states protect married couples by letting them own real estate as ““tenants by the entirety.’’ That prevents one spouse’s creditors from selling the house in order to satisfy a judgment. Where that’s not an option, people vulnerable to lawsuits often move assets into their spouse’s name (no spouse in O.J.’s case).
Bankruptcy isn’t normally thought of as asset protection. But a Chapter 11 filing might let O.J. restructure his finances advantageously. He could slough off some creditors while reaffirming others, Shapiro says. For example, he might keep his Rockingham home if the bank believed that he (or a supportive cosigner) had enough income to make the payments. Most of his assets have liens against them, but loans from friends might not be called. If the assets were sold, unsecured creditors like the Goldmans and Browns probably wouldn’t see a dime. They could garnishee his wages, but they’d have to find them first. Creditors pursue, but shrewd debtors duck them more often than you think.
