July 2007
These days, it’s impossible to keep your wealth a secret from the U.S. government.  At least – it’s impossible to do so legally. 

But that’s no reason to abandon the idea of financial privacy.  Even if you have absolutely nothing to hide, you should still keep your wealth as private as possible for your own asset protection.  And while the most private arrangements are "offshore," you can achieve a surprising degree of financial privacy by properly configuring your domestic assets. 

Apart from simply wanting to keep prying identity thieves or greedy relatives away from your money, why might you want to do this?  Mainly, to avoid lawsuits.  When a lawyer is sizing you up to determine whether to sue you on behalf of a prospective client, the most important thing he or she wants to know is if you have "recoverable assets." 

In most cases, no recoverable assets means no lawsuit, especially if the lawyer is working on a contingency basis, and paid only out of the funds recovered. 

How the Experts Find Out How Much You’re Worth  
That's where my friend Bill comes in.  Bill - not his real name - is a private investigator and asset recovery specialist.  And when it comes to finding your money, experts like my friend Bill know exactly where to look.  They're the ones who rely on to collect judgments, and to size up potential lawsuit targets. 

In his career, Bill has successfully collected millions of dollars for his clients.  But, there are some assets that are much easier for him to research, much less recover, than others.  If you're interested in keeping your financial affairs private, understanding which assets are easiest for an investigator like Bill to discover gives you an important starting point about what investments to avoid. 

What Happens If You’re Sued and Lose  
Let's say that you have a successful medical practice in Phoenix, Arizona, where I live.  You're sued by a patient and lose, and suffer a judgment that exceeds your malpractice coverage by US$1 million. The lawyer representing your patient has Bill on retainer. 

Since you live in Phoenix, presumably, you have a bank account there.  That's very easy for Bill to find, and to attach the balance to help satisfy the judgment. 

You probably have a safety deposit box in Phoenix as well.  That's also easy for Bill to find, and obtain a court order to seize the contents to help satisfy the judgment. 

Likewise, you may own a home in your own name somewhere in the Phoenix area.  Again, this is very easy to find, and through a court-ordered auction, to attach the equity above Arizona's homestead limit of US$150,000.  You may have a securities account with a broker in Phoenix as well.  If you do, Bill can find that - and attach it to your judgment - very easily.

How to Make Your Assets “Less Recoverable” Domestically  
Let's say, though, that you don't have a bank account in Phoenix, or anywhere in Arizona, and you don’t own a safety deposit box in that state.  Instead, you use a bank in New York, and keep only a small account in Arizona.  Bill can probably find the New York account, but it will take some digging. And some investigators aren’t savvy enough to find it. 

Likewise with your domestic investments: If you set up a securities account in another state, Bill will have a much tougher time finding it, because he won't know where to look.

Next, let's assume that you've taken the precaution of using a structure to house your wealth.  Let’s say you set up a limited liability company (LLC) to hold your bank accounts and securities accounts, and that you keep them out of state.  That makes these assets even more difficult for Bill to find, especially if you don't appoint yourself as the "managing member" of the LLC. 

Even if Bill does find the LLC, in most cases, the best he can hope for is to obtain what's called a "charging order" against it once a judgment is rendered against you.  That gives the judgment creditor the right to any future distributions to you from the LLC, up to the amount of the judgment, but doesn't obligate the LLC to make a distribution. 

Take Your Assets Offshore - Far Beyond Your Average P.I.’s Reach  
Going a step further, let's assume that you have a bank account in your name or the name of an entity outside the United States.  In that event, Bill's looking for a needle in a haystack.  While he says there are ways he can obtain information about foreign accounts, he has to have some clues about where to look (at the least, the name of the bank, and ideally, an account number as well).  
Moreover, Bill says it's difficult for him to get his hands on the forms submitted to the government that would have this information on them - Treasury Form TD F 90-22.1 in particular. 

If he does find your foreign accounts?  It's almost impossible for a private party in the United States to enforce a U.S. judgment abroad.  And while a creditor might be able to obtain a court order requiring you to repatriate the assets from abroad, such orders aren't easy to obtain, according to Bill. 

And, while it's possible to enforce such an order with a contempt of court citation (including possible incarceration), such citations are very rarely granted.  Moreover, if you hold those accounts through an entity such as an offshore LLC, they're even more difficult to seize. 

The Three Levels of Privacy and Protection for Your Assets 
Suffice it to say that multiple lines of defense to protect your privacy, and your assets, are your best strategy.  

The first line might be to keep your bank accounts and securities accounts in another state, and to avoid having a local safety deposit box.  The second line of defense might be to keep them out of your name, preferably in an entity that provides asset protection (such as a LLC).  A third line of defense could be to keep the assets offshore. 

This strategy doesn't provide iron-clad protection.  If you're truly at a high risk of being sued, you may want to make it even more difficult for private investigators to discover, much less recover, your assets. Here are a few ideas: 

• Purchase life insurance and annuities (domestic but especially offshore) 
• Set up an offshore asset protection trust 
• Use "equity stripping" hard-to-protect assets like real estate 
• Reinforce the charging order protection of LLCs by making sure there's at least one member other than yourself, and that the LLC doesn't exist for the sole purpose of holding passive assets. 

Whatever strategies you use to protect your assets, the time to act is BEFORE there are any clouds on the horizon.  That means, act right now before your sued, or threatened with suit.  Remember: If you have recoverable assets in plain sight, Bill --or one of his competitors in the P.I. business - will find them.

MARK NESTMANN, Privacy Expert & President of The Nestmann Group

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