Asset protection isn't a game. It's not something to do casually, either. Do it right, or you risk losing your assets…or occasionally, being imprisoned for your efforts.
And so from stage right enters our newest "don't do this" asset protection poster child: one Mary Morris of Palm Beach, Florida. Now housed in the Palm Beach County Jail, Mary could remain there indefinitely unless she pays her ex-husband US$1.8 million.
The convoluted tale began when Mary and her husband divorced in 2001. Fearing his wife would flee with their two children, Mary's then-husband Leland Morris offered Mary a "bonus" if she would allow him to be their primary custodian. The bonus amounted to a whopping US$1.5 million on top of the already generous divorce settlement.
Leland feared his wife would violate the agreement. So along with the bonus, there was a stinger: if Mary contested the agreement, she had to repay the bonus.
Two years later, in 2003, Mary did exactly that. She asked a Florida court to modify the agreement to better fit her, well, Palm Beach lifestyle.
Big mistake. Rather than modify the agreement, Circuit Judge Jeffrey Colbath ruled that her complaint constituted a challenge of the agreement. He ordered her to repay the US$1.5 million plus US$300,000 of Leland's attorneys' fees; US$1.8 million in all.
To collect the judgment, Leland filed a lawsuit to force her to sell her home to pay part of the money. (Apparently, she hadn't owned it long enough to have the generous Florida homestead exemption statutes apply.) Mary promptly took out a US$450,000 home equity loan against the house.
Such conduct may constitute a "fraudulent conveyance;" an effort by a debtor to "hinder, delay, or defraud" a creditor. And Judge Colbath didn't like it one bit. He ordered Mary to return the money, and issued a criminal contempt citation when she refused. After she missed a court date to explain herself, he issued a warrant for Mary's arrest.
Mary then disappeared for a few years. She resurfaced in January, turning herself in at the Palm Beach County Jail. And there she remains to this day.
End of story? No, this is where it really gets interesting. You see, before violating the divorce agreement, Mary formed an offshore trust in the Cook Islands. She claims all her money is in the trust, and she has no way to repay any of her debts. Yet, while she was on the run, she lived abroad on distributions from the trust.
Now, the Cook Islands trustee refuses to make further distributions to satisfy the judge's order. Naturally, this doesn't make Judge Colbath very happy.
As a result, Mary may have an extended stay in the Palm Beach County Jail, although negotiations are underway between the respective attorneys to resolve the situation so she can be released.
The real problem is Mary's penchant for thumbing her nose at court orders. You can't do that and expect to have your asset protection plan keep you out of jail.
What could Mary have done differently to avoid her present circumstances?
- She should have retained sufficient assets in the United States to satisfy any debts she reasonable expected to incur.
- She should have shown up for her court dates.
- She should have not contested the divorce decree.
- She should have followed professional legal advice in setting up and funding the trust.
Did the fact that Mary accepted distributions from the trust while living abroad weaken her case? Yes, definitely, but it's quite possible that this fact alone wouldn’t have landed her in jail had she taken the other precautions I've mentioned.
Asset protection is a serious business. Take it seriously, or you risk your assets—or your freedom.
Copyright © 2008 by Mark Nestmann
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