Rethinking Offshore Asset Protection: How U.S. Courts Treat Offshore Trusts
Offshore asset protection trusts—especially those established in the Cook Islands, and other so-called “debtor-friendly” jurisdictions—are often marketed as bulletproof shields against creditors.
While these structures can offer benefits when implemented properly, U.S. courts routinely look past their formalities to evaluate the underlying reality: control, intent, and timing.
In numerous cases, judges have ordered asset repatriation, denied bankruptcy discharges, or imposed sanctions when Cook Islands trusts were used to shield assets from creditors or government enforcement.
Courts apply a substance-over-form approach, and no offshore jurisdiction is immune from scrutiny.
At Dilendorf Law Firm, we regularly help clients assess the legal risks associated with offshore structures.
The following 29 cases show how U.S. courts actually treat offshore trusts—and why sound legal planning is critical before relying on them.
In this case, the bankruptcy court denied the debtor’s request to eliminate his debts after finding that he had hidden an interest in an offshore trust.
Charles Colburn created a trust in Bermuda called the Prince Trust and moved significant assets into it. Although he claimed he no longer had control over the assets, the court found he retained a hidden right to benefit from the trust in the future. He also held a leadership role in the trust’s protector committee and was listed in SEC filings—further proof of his ongoing involvement.
Yet he failed to list any interest in the trust on his schedules or statements. The court concluded:
“We conclude that the Debtor knew of his reversionary interest at the time he prepared his Schedules and Statement of Affairs but chose to conceal such interest.”
Courts closely examine offshore trusts—especially when a debtor still benefits from or controls the trust in some way. Hiding these interests can lead to serious consequences, including losing the right to discharge debts in bankruptcy.
In this case, the court examined whether a debtor’s offshore asset protection trust, established in Jersey (Channel Islands) and funded with nearly all of his assets, could shield those assets from creditors in bankruptcy.
“[…] Portnoy established a trust (“the offshore trust”) in St. Helier in Jersey, and executed a declaration of trust naming Jarden Morgan Trustees (Jersey) Ltd. as sole trustee (“Jarden”), as himself “Principal Beneficiary,” and his two children as additional beneficiaries. Over the course of the next several months Portnoy transferred his assets to that trust.”
Although the trust appeared valid under Jersey law, the court emphasized substance over form and found that the debtor retained de facto control over the trust. As a result, the court concluded the trust was illusory and denied Portnoy a discharge under 11 U.S.C. § 727(a)(2)(A).
In this matrimonial action, the husband attempted to shield marital assets by transferring them into a Cook Islands trust during divorce proceedings.
The court refused to recognize the trust’s protections, holding that it was used to hinder equitable distribution and evade marital obligations. This case exemplifies how domestic courts treat foreign trusts with skepticism when used to obstruct fair division.
“[…] this court awards to the plaintiff one half of the value of the marital assets placed in the Cook Islands trust by the defendant […] to wit: $ 2,000,000.”
The debtor created and funded a Cook Islands trust while owing substantial debts and immediately before filing for bankruptcy.
The court determined that the trust was established with the intent to hinder, delay, or defraud creditors, making the transfer fraudulent under § 727(a)(2).
“[…] court essentially described the trust provisions here, i.e., the trustees are to pay to the debtor-settlor all of the income and as much of the principal as is deemed advisable in their discretion.”
This case involved Michael and Denyse Anderson, who transferred proceeds from a fraudulent telemarketing scheme to a Cook Islands trust. When ordered to repatriate the assets, they claimed impossibility due to the trust’s duress clause.
“Although the Andersons assert that their ‘inability to comply with a judicial decree is a complete defense to a charge of civil contempt, regardless of whether the inability to comply is self-induced,’ […] It is readily apparent that the Andersons’ inability to comply with the district court’s repatriation order is the intended result of their own conduct – their inability to comply and the foreign trustee’s refusal to comply appears to be the precise goal of the Andersons’ trust.”
The Ninth Circuit affirmed the contempt order, finding that the Andersons retained control over the trust structure and had orchestrated the conditions preventing compliance.
Bilzerian, a former corporate raider, was subject to a disgorgement order in connection with an SEC enforcement action. In an attempt to avoid this judgment, he transferred funds into offshore accounts while the court’s asset freeze order was in effect. The court held him in civil contempt for violating the order.
“[…] the Court finds that Bilzerian has not made all reasonable efforts to comply with the Orders. In fact, the Court finds he has purposefully sought to insulate his assets from the Court’s reach. Third, the Court finds that, to the extent that Bilzerian cannot comply with its Orders, it is the result of his own machinations.”
In this Chapter 7 bankruptcy, Stephan Lawrence transferred substantial assets into an offshore trust prior to facing an adverse arbitration award. After the court ordered turnover of the trust assets, Lawrence invoked the trust’s duress clause and claimed compliance was impossible.
The Eleventh Circuit rejected this defense, holding that Lawrence retained de facto control over the trust through his power to appoint trustees. Because he had created the impossibility himself, the court upheld a civil contempt sanction, including incarceration until compliance.
“[…] Lawrence created this Trust in an obvious attempt to shelter his funds from an expected adverse arbitration award. In addition, at the time Lawrence became an excluded person under the Trust he retained the ability to appoint a new Trustee who would have the power to revoke the excluded person status at any time.”
Brian and Elizabeth Weese transferred over $20 million to a Cook Islands trust shortly after Bank of America demanded repayment of a multimillion-dollar loan.
Although the trust was designed to shield assets from creditors, the court found that the Weeses retained effective control over the trust and used its assets for personal benefit, including living in a trust-owned property rent-free.
“[…] the Weeses allegedly transferred millions of dollars into an offshore trust created pursuant to the laws of the Cook Islands in an effort to defraud the creditors.”
The court concluded that the trust arrangement did not preclude liability and found that the couple had acted in bad faith.
In this case, GFL sought to enforce subpoenas against a domestic bank to obtain records related to an offshore trust allegedly used to conceal assets. The court upheld GFL’s right to discovery, rejecting the bank’s arguments that the subpoenas were overbroad or burdensome.
This case illustrates that while Cook Islands trusts may be formed offshore, U.S. courts can still compel domestic entities to provide relevant financial information.
“[…] this court issued the subpoenas based, in part, on Section 5326(a), which provides:
A court of record of this Commonwealth may order a person who is domiciled or is found within this Commonwealth to give his testimony or statement or to produce documents or other things for use in a matter [*15] pending in a tribunal outside this Commonwealth.”
In this high-net‑worth divorce case, the husband created a Bahamas asset-protection trust shortly after separation and continued transferring marital assets into it during litigation.
The Wyoming courts found that the trust was formed and used specifically to place assets beyond the reach of both present and potential creditor claims—including those of his spouse.
“The [family] Trust was created for the sole purpose of defrauding the defendant’s creditors and potential creditors, including the plaintiff, Nancy L. Breitenstine.”
The court further noted the husband retained control over those assets despite the offshore designation. Ultimately, the court ordered asset repatriation, assignment of property under his control to the wife, and held him in contempt for continued noncompliance.
The FTC brought claims against defendant Andris Pukke for operating a deceptive nonprofit credit counseling service. The defendant transferred substantial assets to multiple offshore trusts, including one in the Cook Islands. Despite these transfers, the court found that the defendant maintained substantial control over the trusts.
“As far as the power of the Court to compel trustees to turn over trust assets to the Receiver, the Order requires Defendants […] to turn over trust assets to the Receiver. […] Andris Pukke, who appears to maintain substantial de facto control over the trusts [..].”
The court reviewed whether funds transferred into offshore trusts could be recovered during a bankruptcy proceeding. The opinion illustrates judicial willingness to scrutinize asset transfers designed to hinder creditors.
Despite the foreign structure and spendthrift provision, the court noted that it was self-settled and subject to U.S. creditor reach. The judge allowed claims to proceed on alter ego, fraudulent transfer, and unjust enrichment theories, focusing on the settlor’s continued control.
“Although the JG Trust includes a spendthrift provision, it is not a spendthrift trust because it was self-settled [… ]. Florida courts do not enforce spendthrift provisions where a trust was self-settled or where the beneficiary retains control over the trust’s property.”
The SEC pursued the defendant, Solow, for failure to satisfy a prior judgment. The defendant claimed an inability to pay due to funds being placed in an offshore trust.
The court rejected this defense and granted the SEC’s motion for contempt, finding that the defendant’s conduct demonstrated a willful attempt to frustrate collection efforts.
“This Court finds that Mr. Solow was diligent in his efforts to divest himself of assets that would otherwise have been available to satisfy the Court’s disgorgement order.”
In Greenspan v. LADT, LLC, the California Court of Appeal held that a trustee can be added as a judgment debtor under the alter ego doctrine when a trust is used to shield assets and avoid liability.
After securing an $8.45 million arbitration award against two LLCs controlled by real estate developer Barry Shy, the plaintiff sought to add Shy, his companies, and the trustee of the Shy Trust as judgment debtors. Although the trial court denied the motion—ruling that the alter ego doctrine doesn’t apply to trusts—the appellate court reversed.
The court clarified that while a trust is not a legal entity, a trustee may be held liable under the alter ego doctrine:
“Under prevailing authority, Moti Shai, as trustee of the Shy Trust, may be added as a judgment debtor to provide creditors with access to the trust’s assets.”
The decision underscores that courts may pierce formal structures, including trusts, to prevent injustice and enforce judgments.
the Federal Trade Commission pursued action against a deceptive telemarketing and negative option marketing scheme.
The court’s findings addressed the defendants’ financial transfers, including attempts to shield assets through trusts or layered structures.
“There is good cause to believe that immediate and irreparable damage to this Court’s ability to grant effective final relief for consumers […] will occur from the sale, transfer, or other disposition by Defendants of their Assets and company records […] unless Defendants are restrained and enjoined by Order of this Court.”
In this healthcare fraud case, the United States obtained a $64.2 million judgment against Peter Rogan, who had fled the country. To enforce the judgment, the government traced Rogan’s investment in a company called 410 Montgomery, LLC.
Although Rogan did not hold title to the underlying assets, the government sought to garnish the company’s proceeds based on Rogan’s membership interest.
The case underscores how courts distinguish between legal ownership of company assets and equity interests held by individuals. Despite Rogan’s indirect control, the court reinforced that equity holders are residual claimants and do not own the company’s property, which limits their ability to shield assets from creditors through corporate entities or similar asset-holding structures.
“Investors in corporations and LLCs own tradable shares or units; they do not own the company’s assets. The separation of investment interests from operating assets is a fundamental premise of business law.”
This case illustrates that while entities like LLCs may provide a degree of separation, courts will not permit them to frustrate legitimate enforcement of judgments — especially when the individual retains a financial interest subject to garnishment.
In this case, the court blocked an attempt to seize assets held in a Cook Islands trust. Jeffrey Baron was accused of trying to move money offshore to avoid paying lawyers. The trust, called the Village Trust, owned U.S. companies that held valuable domain names, and Baron was its only beneficiary.
Even though Baron’s behavior frustrated the court, the judges ruled that seizing his trust assets was not allowed: “The receivership […] encompassed all of Baron’s personal property […] none of which was sought in the […] lawsuit.”
The court made clear: U.S. judges can’t take control of foreign trust assets just because someone might owe money. There must be a valid legal claim first:
“A court may not reach a defendant’s assets unrelated to the underlying litigation […] to satisfy a potential money judgment.”
In this case, the Illinois Supreme Court examined whether a transfer of assets into a self-settled trust by a debtor constituted a fraudulent transfer under the Illinois Uniform Fraudulent Transfer Act (IUFTA).
The defendant, Sessions, transferred $1.5 million into a trust after incurring substantial medical debt. The court found the transfer was made with the intent to shield assets from creditors, emphasizing that such a transfer to a self-settled spendthrift trust could not defeat legitimate claims.
“A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation with actual intent to hinder, delay, or defraud any creditor of the debtor.”
This case highlights the vulnerability of self-settled trusts—even those with spendthrift provisions—when used to hinder, delay, or defraud creditors. Courts may unwind such transfers and permit creditors to reach the trust assets, especially where timing and circumstances suggest deliberate evasion.
In this case, the U.S. government obtained a $36 million judgment against Arline Grant and sought to collect against assets held in two offshore trusts in Bermuda and Jersey. Despite a 2005 repatriation order requiring Grant to bring the assets back to the U.S., she failed to comply and later received over $500,000 in trust distributions, much of it routed through accounts in her children’s names.
The court ultimately held Grant in contempt and issued a permanent injunction, requiring her to (1) request trust distributions on a quarterly basis, (2) surrender all funds received from the trusts, and (3) refrain from informing trustees that her requests were compelled by court order.
“Mrs. Grant has engaged in a scheme to avoid collection of her liabilities by having trust funds directly deposited into accounts in her children’s names. […] Through this scheme, Mrs. Grant has dissipated hundreds of thousands of dollars of assets to which federal tax liens attach.”
This case highlights how U.S. courts can pierce the formality of offshore trust structures when debtors retain control or benefit from the assets and attempt to frustrate enforcement. Even when the trust is foreign, courts may compel repatriation and enjoin efforts to hide or dissipate assets under tax collection authority
In this case, the defendant transferred millions of dollars in assets to a Cook Islands trust while seeking a loan modification from U.S. Bank. The court found that Rose’s failure to disclose the trust violated the loan’s antiassignment provision and constituted a fraudulent inducement.
“We cannot conclude that the transfer of millions of dollars in assets to an offshore account in the Cook Islands would have been immaterial to US Bank’s decision to extend the Loan.”
The appellate court reversed the denial of prejudgment attachment, underscoring the materiality of hiding offshore transfers.
After transferring $6 million into a Cook Islands trust to shield it from creditors, Daniel Allen argued the funds were beyond reach. The court disagreed, finding that fraudulent transfers are still recoverable even if the assets are offshore.
“The mere fact that Allen’s dilatory conduct has foiled ATN’s past attempts to recover actual possession of the funds does not preclude a finding that the funds are properly part of ATN’s estate […].”
In this bankruptcy case, the debtor attempted to shield assets by transferring funds into a trust. The court found that the debtor had transferred the funds to hinder, delay, or defraud creditors and held that the trust transfer was avoidable under both state and federal fraudulent transfer laws.
“The Trustee alleged that the Debtor paid down his debts and granted collateral security to some of his creditors, but claimed insolvency to many others, telling creditors that “[the project] had wiped out his assets and that he would not be able to pay his debts.”
The case underscores that even trust transfers that occur years before bankruptcy may be unwound if done with improper intent.
In this case, the court examined a series of transfers made by a judgment debtor into a trust to frustrate creditor recovery.
Although the trust itself was not a party to the suit and the complaint did not formally seek relief against it, the court acknowledged the debtor’s creation of the trust and transfer of assets into it as part of a broader fraudulent scheme.
“The money Donnelly [Impleader-Defendant] saved by having the Trust pay her legal expenses was an ill-gotten gain, or unjust enrichment. […] In addition to a judgment as to the fraudulently transferred funds in Donnelly’s possession, the Court will enter judgment against Donnelly for the amount that she was unjustly enriched (plus interest) by having her legal expenses paid with fraudulently transferred funds.”
The ruling illustrates the limitations of asset protection when trusts are used to hide or reroute assets from creditors. Courts may still reach assets in such trusts through equitable remedies like disgorgement.
In this case, the debtor established a Cook Islands trust and transferred nearly $700,000 into it shortly before filing for bankruptcy. The court found the timing and circumstances surrounding the transfer indicative of fraudulent intent.
Despite the offshore nature of the trust, the court held the transfer avoidable under federal bankruptcy law, reinforcing that foreign trusts do not shield debtors from U.S. fraudulent transfer rules.
“The Court finds that, in the one year prior to the Petition Date and in the time after the filing of the Petition, the Debtor, with the subjective intent to hinder, delay, or defraud his creditors, transferred, removed, or concealed, or has permitted others to transfer, remove, or conceal, the Debtor’s property.”
The Illinois Appellate Court affirmed the trial court’s decision to hold Steve Fanady in indirect civil contempt and order his incarceration for failing to comply with a divorce judgment that awarded his former spouse, Pamela Harnack, 120,000 shares of CBOE stock. Over a decade of litigation, Fanady repeatedly resisted enforcement of this judgment by transferring assets offshore and claiming an inability to comply.
The Illinois Appellate Court rejected Fanady’s defense and affirmed the contempt finding, emphasizing that a party cannot avoid court orders by deliberately placing assets out of reach through foreign trust structures:
“Just as we previously explained that Fanady cannot ‘escape his obligations to Harnack by swindling his business partners’ to make assets unavailable, he also cannot avoid his obligations to his former spouse by structuring his assets in an offshore trust with the express goal of ‘making himself uncollectable.’”
This case illustrates how Illinois courts scrutinize and pierce offshore trust arrangements when used to frustrate court orders, particularly in domestic relations matters, and reinforces that self-induced “impossibility” will not shield parties from contempt findings.
In Brown v. Higashi, the U.S. Bankruptcy Court for the District of Alaska pierced two Belizean self-settled trusts—Leones Company and American International Retail—holding that they were created by the debtors, S. Wayne and Carrol Brown, through fraudulent transfers to shield assets from creditors, and therefore were invalid under Alaska law.
The court found the trusts to be mere instruments of deception rather than legitimate estate planning tools: “The true substance and business of this trust is to avoid creditors and nothing more”, and ruled that their assets were property of the bankruptcy estate.
The court applied substance-over-form analysis and highlighted the futility of hiding behind foreign jurisdictions:
“Belize is a popular trust jurisdiction precisely because it allows the types of fraudulent transfers that are unenforceable in America.”
The ruling sends a clear message: offshore self-settled trusts, even those formed under protective foreign laws, will not be honored in U.S. bankruptcy proceedings if they are used to defraud creditors.
In FTC v. Fortuna Alliance, the Federal Trade Commission obtained a permanent injunction and $2.8 million in consumer redress against Fortuna Alliance, L.L.C. and its principals for operating an illegal pyramid scheme and making deceptive earnings claims.
The case is notable not only for its consumer protection enforcement but also for how the court dealt with asset shielding mechanisms—including foreign trusts and offshore protections—used to delay or prevent victim restitution.
The Fortuna defendants had transferred substantial assets to offshore accounts and sought protection under foreign trust structures in jurisdictions such as Belize and Antigua. These trusts, likely structured to insulate funds from U.S. enforcement, became a major point of contention in the litigation and settlement process.
The court imposed strict conditions to ensure the return of funds to defrauded consumers:
“If requests for refunds exceed this initial Redress Fund, the Fortuna Defendants shall make sufficient additional funds available […] secured with an irrevocable letter of credit […] in an amount of $2.8 million.”
In In re Bressman, the U.S. Court of Appeals for the Third Circuit addressed whether legal fees paid to two law firms—using funds funneled through a Cook Islands trust—could be clawed back by the bankruptcy trustee as unauthorized post-petition transfers of estate assets.
The Third Circuit assumed, for purposes of analysis, that the Cook Islands trust was in fact part of the bankruptcy estate, but it still ruled in favor of the law firms. It held that under § 550(b)(1) of the Bankruptcy Code, a trustee may not recover avoidable transfers from transferees who take in good faith, for value, and without knowledge of voidability. The court concluded that the law firms met this standard:
“Each of the law firms came forward with persuasive evidence that they knew they could not accept payment from estate assets […] and that they were unaware of any connection between the payments and estate assets.”
While the court ultimately upheld summary judgment in favor of the law firms, the case highlights the judicial treatment of foreign trust structures in bankruptcy when used to fund litigation expenses or obscure asset ownership.
In United States v. Plath, the U.S. District Court for the Southern District of Florida held Robert Plath in civil contempt for failing to comply with a court order compelling him to produce documents and testify in connection with IRS summonses related to an offshore trust account.
The court found:
“The evidence indicates that Plath received a package purchased on the Leadenhall Trust account, and thus he had some knowledge of the offshore account at Leadenhall Trust. Yet, Plath failed to use any efforts to contact Leadenhall Trust to obtain the necessary documentation.”
The court rejected Plath’s claim of inability to comply and held:
“Plath has failed to meet the substantial and rigorous burden of showing that he has made ‘all reasonable efforts to comply.’”
This case illustrates how U.S. courts can compel compliance with IRS summonses even when the target attempts to hide behind foreign financial structures like offshore trusts or credit card arrangements. Although the court did not make a specific ruling on trust ownership or fraudulent transfer, it treated the offshore account as within the respondent’s control and presumed access, given the direct evidence of use.
Conclusion
Every one of these cases teaches a clear lesson: offshore does not mean untouchable. Courts consistently pierce through the illusion of protection when offshore trusts are abused, misused, or misunderstood.
At Dilendorf Law Firm, we help clients design structures that work—not just in theory, but under real-world legal scrutiny. Whether you already have a trust in place or are exploring your options, we offer comprehensive risk reviews, legal opinions, and redesign strategies.
Contact us at (212) 457-9797 or email us at info@dilendorf.com to schedule a confidential consultation and protect your assets the right way—before it’s too late.
