November 12, 2013

One of the greatest threats to an individual’s wealth is divorce. With the chance of a successful marriage hovering at or below 50% in the United States, it is important that individuals consider asset protection strategies before marriage. A recent article discusses how one man used a “Collapsing Bridge Trust” to protect his assets against a messy divorce.

The man, let’s call him Fred, who was worth $150 million and facing divorce, contacted his father’s attorney in an attempt to shield his assets from his soon to be ex-wife, let’s call her Wilma. The attorney quickly created a “Collapsing Bridge Trust,” which proved successful in protecting Fred’s assets from the divorce.

In order to do this, Fred’s attorney first created an offshore asset protection trust. These trusts are often set up in places such as the Cook Islands or Belize. Next, the advisor created a Domestic Limited Liability Company owned entirely by the new offshore trust. Fred’s attorney then moved half of Fred’s assets into the LLC, and named the man as the manager. Although this meant that Fred no longer owned the assets, Fred was able to oversee their management and investment.

If Wilma attempts to access the assets within the trust, the collapsing bridge provision would come into play. Essentially, the offshore trust would collapse the LLC, which would revert the assets in the LLC to the trust. In the trust, the assets would have been unreachable by Wilma.

As with any Asset Planning, timing is everything.  Be careful to consult with your attorney to ensure that any such plans do not run afoul of Fraudulent Conveyance rules.