South Dakota has become a domestic mini-Switzerland for wealthy people who want to shield their assets. Texas billionaire Ed and Marie Borsage’s divorce is shining an unwanted spotlight on both his finances and the use of trusts in the state, according to CNBC’s recent article “Billionaire Divorce uncovers secretive world of trusts in South Dakota.”
Married for three decades, the Borsage’s accumulated 12 homes and an unusual collection of high- priced items, like an Egyptian mummy and Marilyn Monroe’s personal effects. It was quite a lifestyle. However, when Ted filed for divorce, Marie discovered that everything had been put into special trusts that shielded assets from any claims. After paying her legal fees, she may end up with nothing from the 30-year marriage.
Ed’s attorneys are making the claim that all of the assets are controlled by the trust, so they are not marital assets. The total value of the couple’s marital property, which would be subject to division in a divorce, is about $12 million. Marie’s legal bills are already in the millions.
The unpleasant nature of the divorce offers a rare look into the highly secretive world of asset trusts in South Dakota. The protective trust laws of the state make it a haven for wealthy families from the U.S. and around the world. Experts say that about $250 to $900 billion is now being held by South Dakota trusts, from Chinese billionaires, Europeans seeking to protect from taxes and Americans looking to protect their wealth from any claims.
When the two married in 1989, they had no wealth. Ed began a commodities trading business and Marie was one of the first employees. They became wealthy. However, in 2012, according the lawsuit, Ed began an affair and filed for divorce in 2017. That was when Marie learned that he had been transferring their business and personal assets into a complicated series of trusts, first in Bermuda and then in South Dakota. Marie was originally a beneficiary of the trust, but then before the divorce, Ed started transferring assets and she was removed as a beneficiary.
According to South Dakota law, he was not required to notify her of the changes. Trusts in South Dakota are also perpetual. Therefore, a wealthy family can put assets into a trust that are held in perpetuity, rather than a limited period of time. The state also gives trusts sweeping privacy and asset-protection against creditors, business partners, lawsuits—and ex-spouses. South Dakota has no inheritance, capital gains or income taxes. It’s an extremely attractive state for people who want to keep their business private and protected.
The state also has strict information protections, so there are nondisclosure orders on all of the attorneys and all of the filings in the divorce case.
However, it is critical to understand that South Dakota’s fraudulent transfer laws prohibit transfers to a trust that were made with the intent to defraud a creditor. South Dakota takes a “white gloves” position and only protects for future creditors after proper conveyances are made to a trust and the trust is properly established. In the litigious society that we now live in, it is prudent to protect what we have built, especially knowing that bad things can happen to good people in just a blink of an eye. It is also critical to understand that these trusts aren’t just for the ultra-wealthy. Indeed, a South Dakota Asset Protection Trust might be even more important if you don’t have as much or you have a legacy piece that you want to make sure stays in the family, such as a family farm. If you have questions on how a South Dakota Asset Protection Trust can help accomplish your goals for protecting wealth or the things you hold dear, make sure you visit with an estate planning attorney who is experienced with asset protection planning. At Legacy Law Firm, P.C., asset protection planning is our forte. If you have any questions, give us a call at (605) 275-5665 or click here to learn more.
Reference: CNBC (May 6, 2020) “Billionaire Divorce uncovers secretive world of trusts in South Dakota.”