It is no secret that people will go to great extremes to hold onto their wealth, which is particularly evident during divorce where dividing assets often becomes a quarrelsome and contentious legal battle.
However, the recently released Panama Papers show just how far some of the world’s most affluent individuals will go to hide assets from their spouse in the event of divorce — something that comes with its own inherent risks.
And while your average divorce will not be dealing with a potential marital estate in the billions of dollars, the revelations found in the Panama Papers effectively demonstrate how anyone going through divorce may feel motivated to devise creative methods to hide their assets.
What are the Panama Papers?
More than a year ago, a 2.6 terabyte cache of data (roughly 11.5 million documents) from Panama-based law firm Mossack Fonseca was anonymously submitted to the German newspaper Süddeutsche Zeitung.
The documents contained details on the firm’s business dealings, which primarily consisted of setting up and selling anonymous corporations in various tax havens across the globe. The world’s elite can then purchase these companies to secretly funnel money or assets offshore.
For an additional fee, however, the firm will also provide a fake director and hide the company’s actual shareholder. This makes it difficult — if not impossible — to determine the company’s actual purpose and who really owns it, keeping the business dealings out of the public light.
While an offshore corporation is not necessarily illegal, many of these shell companies are used for transactions that fall on the darker side of the legal grey area. For example, the documents have exposed bribery schemes and corruption among numerous high-ranking politicians from around the world.
Süddeutsche Zeitung teamed up with the International Consortium of Investigative Journalists and has worked to analyze the data trove over the past year, uncovering a plethora of celebrities, politicians, professional athletes, CEOs, mafia members and more who have utilized the services of Mossack Fonseca over the past several decades.
High-net-worth divorce services
One of the many uses for an offshore shell company includes squirreling away assets for the ultra-wealthy in the event of divorce.
As part of a divorce package, Mossack Fonseca offered “cover-up” services to affluent clients, which involved experts at the firm investing assets in the offshore front companies making them extremely difficult and expensive to trace.
This is exactly what Russian billionaire Dmitry Rybolovlev tried to do before his divorce in 2008.
After 20 years of marriage and worth an estimated $8.5 billion, Rybolovlev was set to lose half in the divorce with his wife Elena under Swiss law.
By utilizing the services of Mossack Fonseca, however, Dmitry had been stashing assets in trusts owned by three front companies based in the British Virgin Islands for years before the divorce was ever filed.
Included were valuable paintings by Picasso and Van Gogh, a $60 million yacht and Louis XVI-style furniture, which were transferred out of Switzerland and into Singapore and London.
Only through his wife’s suspicion and quick action was she able to obtain a freeze on these assets, and though it was never definitively proven that he intended to deprive his wife of her marital share, the timeline on some of the transactions suggests that was likely the case.
Spinning a complex financial web
You do not become a part of the world’s 1 percent by being oblivious to loopholes in the global financial system, so it should not come as a surprise they can be exploited during something as fiscally devastating as divorce.
Offshore protection trusts and corporations work by taking a person’s name off of an asset and placing it in control of the shell entity, effectively removing personal liability.
The common offshore banking havens (frequently used by companies to avoid regulatory oversight and tax liability) also serve as a protection from the divorce discovery process, as they have stringent privacy legislation in place to prevent outside access to financial information.
This makes it extremely difficult for attorneys and forensic accountants to obtain the necessary proof that the money or property exists — let alone how much — even if you are fairly certain your spouse is trying to hide something.
With enough foresight, wealthy individuals can begin tucking away assets in a tangled web of offshore bank accounts, asset protection trusts and shell corporations that can be nearly impossible to unravel.
Additionally, the experts required and costs associated with the work are often astronomical, which makes untangling the network even more challenging for the innocent spouse.
All’s fair in love and war
While there will be fees and expenses associated with moving assets around the world through various offshore accounts, it would appear that paying a third-party to facilitate the transactions is often an easier expense to accept than splitting the property with an ex-wife — a theme that likely resonates with many going through divorce.
However, it is important to remember that trying to flout the law can result in serious consequences.
It is true that when an offshore asset protection trust or shell corporation is uncovered during divorce, family courts have little authority to dismantle and redistribute the assets since they are not technically controlled by the offending party and are held in a foreign jurisdiction.
However, the courts can employ a variety of legal remedies to equalize and penalize the offending spouse for fraud. For example, the value of whatever was hidden can be added to the marital estate, which would then be up for distribution.
They can also take it a step further by awarding a far greater sum to the innocent party as a form of punishment for the deceit, and most states allow for a divorce judgement to be set aside if it becomes clear assets were not disclosed during the initial court proceedings.
Divorce creates a situation where normally rational and level-headed people succumb to emotion, resulting in actions they would not typically consider
And let’s face it, the thought of losing half your acquired wealth to someone you likely now despise is a tough pill to swallow no matter how many zeros are on your bank statement.
However, it is important to remove emotion from the equation, because taking actions to circumvent the law is an inherently risky proposal with potentially severe consequences.
It is typically a far better option to play by the rules, even when they seem unfair, than to try to find a way around them.
While you may see a chance to really “stick it” to your ex one last time, the chances are you are not nearly as sneaky as you think.
Mat Camp is a former Lexicon Services Online Editor, who focused on providing a comprehensive look into all aspects of the divorce experience. On MensDivorce.com, he concentrated on issues, such as parenting time, custodial rights, mediation, the division of assets, and so much more.
Mr. Camp used the wealth of experience of Cordell & Cordell attorneys to bring tangible answers to reader questions in Ask a Lawyer articles, as well as offer a step by step process through the divorce experience with Cordell & Cordell Co-Founder and Principal Partner Joseph E. Cordell in Divorce 101: A Guide for Men.
Mr. Camp used thorough research to highlight the challenging reality that those who go through divorce or child custody issues face. He helped foster the continued success of the Men’s Divorce Survival Guide, the Men’s Divorce Podcast, and the Men’s Divorce YouTube series “Attorney Bites.”