The Trump Organization: Was it Reactive or Proactive Financial Planning?
In white-collar criminal cases, the investigation phase can be the most vulnerable time for a target’s assets due to civil asset seizure. It is a routine matter for the government to freeze property during this phase because the seizure is based only on probable cause rather than a finding of guilt. Civil seizures are performed so assets cannot be liquidated or transferred before a pending formal accusation or final judgement. The idiom, “timing is everything,” plays a crucial role in determining if a transferring of assets is simply good financial planning or…a fraudulent conveyance.
Financial planning often includes placing some or all assets under a protective umbrella as part of a proactive plan to protect assets in the event that there is a future claim against them. But when assets are transferred or restructured within the time period of an anticipated legal action with the purpose to delay or defraud imminent creditors, it is not difficult to make the assumption that this is an attempt at fraudulent conveyance.
Transferring assets fraudulently is a crime. An honest civil or criminal defense attorney would likely never advise this action when there is an imminent formal accusation against a target where a court judgement is anticipated. Lest there be any doubt, there is a huge difference between legal asset protection for financial planning and fraudulent conveyance.
Placing assets in offshore accounts is a popular and routine measure of sound financial planning for future financial security and to protect assets against potential future claims. The reason this is so appealing is that most offshore jurisdictions do not recognize foreign judgements. Also, pursuing a case for fraudulent conveyance in offshore locals is difficult because the burden of proof falls on the shoulders of the creditor who must travel to that jurisdiction to prove the claim that the transfer was a result of a target’s intent to defraud. This is both time consuming and expensive.
But one doesn’t have to travel to exotic locals to seek a safe financial haven because….Delaware. The state of Delaware is where over 60% of Fortune 500 companies and other domestic and foreign LLCs are incorporated and these include Amazon, Google, Tesla, Walmart, American Express and Disney. Despite this tiny state having only 1 million residents, it has nearly two million registered corporations that garners a quarter of the state’s general fund revenue. But why Delaware? Arguably, the main reason is because it is an “on-shore” tax haven due to the “Delaware Loophole” which essentially enables companies to avoid paying state corporate income tax no matter where the income is earned. Another reason Delaware is attractive for incorporation is because it has a “special court” called the Court of Chancery. This court rules solely on corporate law disputes and does so without juries, and because the judges who sit on this court specialize in corporate law, there is a plethora of judicial precedent which allows for swift and fair adjudication. Finally, Delaware does not require disclosure of who owns the incorporated business, so this provides a “cloak of cover” for those who desire it. Financial Times reporter Hal Weitzman wrote an excellent book about Delaware’s business boom called, What’s the Matter with Delaware? that explores this “tiny state’s massive role in global financial secrecy.”
This brings us to Trump’s recent forming of a new entity, “Trump Organization II LLC", which is seeking incorporation in Delaware and is essentially a restructuring of the original Trump Organization which is incorporated in the state of New York.. According to multiple sources, Trump already has over 300 companies incorporated in Delaware but this recent major shift to create a new entity is curious because it was done the same day that New York AG, Letitia James, filed a $250 million dollar civil suit against the Trump Organization for “numerous acts of fraud and misrepresentations.” James is taking steps to block the formation of the new LLC so that no assets from the original company can be transferred from New York to Delaware so that there will be funds available to satisfy any disgorgement from the Trump Organization if the AG prevails in the suit against it. If successful in blocking what appears to be a transfer of assets, the AG will place those assets with an independent monitor that would oversee that the Trump Organization is in compliance and that “any new financial disclosures to banks and insurers contain all supporting and relevant material.”
As always, my blogs circles back to the matter at hand and that is the white-collar innocent spouse. Aside from the fact that a lone bad actor’s financial crime is an egregious breach of familial financial trust and a crime against one’s family, as previously stated, these crimes routinely trigger civil asset seizure during the investigative phase so that assets are on hand for restitution and other penalties during sentencing. But too often, rather than seizing only the marital assets belonging to the target, the government takes ALL of the marital assets without acknowledging the non-offending spouse’s joint ownership of the marital estate. Instead, the non-offending innocent spouse is suddenly deemed a third-party to their LEGAL portion of untainted marital assets. Through no fault of their own, innocent spouses and children are often left penniless, without a roof over their heads, shamed, and without due process to protect untainted assets to survive on. To be victimized by a spouse and then again by the government causes families to suffer acute harm from the fallout of an occupational crime.
It is not uncommon for my innocent spouse clients to tell me that their husband wants to transfer all assets into the innocent spouse’s name to protect jointly held assets to protect the innocent spouse and children, and I answer that query with an emphatic no and go on to explain why this is a bad idea that will only make matters worse. These questions are not asked in an attempt to break the law, they are asked because the average person assumes this is a safe and legal move. Civil asset seizure has it’s place, but that place should never include the taking of a non-target’s assets, and especially where no due process is given.
In the Trump Organization’s case, it will be interesting to see how transferring assets from an old business to a new business in Delaware plays out during an ongoing investigation.
