Where Is The Money Hidden?

By Andrew Rogerson, Barrister and Solicitor

Sadly, many Statements of Financial Circumstances bear little relationship to the real picture. A self-employed spouse may run an expensive car, take many overseas trips and stay at 5 star hotels, but declare a loss on his tax return. So, you ask “fifty percent of what?” Forensic accounting can do much to cut through the fiction of many balance sheets. But, if the money happens to have been secreted offshore, what do you do? Or for starters, when there is a clear gap in your spouse’s declared assets, what may lead you to suspect that money has been sent offshore?

Firstly, a word on offshore banking and tax havens. Contrary to what governments would wish us to believe, there is nothing illegal, immoral or in any way improper in keeping money offshore. And there is certainly nothing wrong in having an offshore trust. The Double Tax Treaty with Barbados provides for an attractive tax rate for Canadians wishing to use a Barbados corporation to carry on their business. Businesses people of many levels, up to that former Prime Minister Paul Martin, use the Barbados connection. It makes sound business sense.

Many tax havens are also in the business of promoting Asset Protection Trusts. In these arrangements, assets are held on your behalf in a trust that, depending on location and correct establishment, will provide a high degree of protection from one’s creditors. The trust funds, technically, no longer belong to the person who settles the trust. He or she may not even be a direct beneficiary. So, nothing to declare in the Statement of Financial Circumstances. Similar considerations apply to the use of offshore corporations that have nominee shareholders and directors. Technically, not owned by your spouse. Even with a simple offshore bank account, secrecy laws in the relevant jurisdiction may prevent you obtaining information. And, of course, your spouse may not oblige by admitting he has the account. The money is sitting there, just waiting for the day that estranged spouse and new lover may take off to start a new life in sunnier climes.

Where is the money likely to be? The tax havens now call themselves Offshore Finance Centres. Some like The Cayman Islands, The Turks and Caicos Islands and The Cook lslands are located in pleasant, hot places. They  have the added attraction of beach activities, to pass the time during which one is not busy in the bank or at the lawyers’ office. Other jurisdictions such as Switzerland and Panama offer banking secrecy and efficient services for foreigners.  A few have devised legislation to make it particularly difficult for creditors to get their hands on funds held in trust or bank accounts. The Cook Islands has very short limitation periods for bringing an action. They even have a double hurdle, in the form of obtaining the leave of the court to even bring an action.

What will make you even start to consider that money is hidden offshore? Well some people cannot keep their mouths shut. A topic of conversation for a limited duration may be: “I always wanted to go and visit Bermuda”. Or computers left on, that display Google hits on phrase such as: “offshore banking”; “asset protection” and “tax haven”. Sometimes it is just a hunch. A spouse who travels a great deal; takes sizeable amounts of cash with him or her and returns with none, may well have opened up a bank account overseas. It may not be in a tax haven, but in the USA or a European country. A frequent traveler may amass a sizeable deposit over time. ABM machines may be accessed overseas to provide top-up funding. Larger transactions will show up on mainland bank statements with destination.

The use of third party countries for international trading will enable transfer pricing to take place. For example, selling goods from Canada to a subsidiary in Mauritius and then the subsidiary selling on to India at a higher price, the balance being retained in Mauritius. Or, using a Cyprus company to effect the same in trade with Russia. Many professional and sports men and women who obtain contracts to work overseas arrange to be employed by, say, a Bahamian company which invoices his or her employer and pays a reduced amount to the spouse. The balance is kept in the Bahamas. The permutations are endless.

So what can you do to find out if funds are hidden? Piece together your spouses travel and residence details over the years and advise your lawyer. Your matrimonial lawyer may then make inquiries in offshore locations as to banks and trust companies. Orders may be made in Canadian courts for spouses to provide details of offshore assets. However the most useful device is often to obtain orders directed to offshore financial institutions to waive secrecy and provide details of deposits in the spouse’s name or trust and or companies that have been formed or are in some way connected with the spouse. These orders are obtained in the offshore jurisdiction using overseas lawyers. Once information is to hand, then orders may be obtained in offshore courts to freeze assets pending trial in Canada. Provide one has money to finance such proceedings then the orders are not too difficult to obtain. However, success is predicated on having money to fight such battles in the first place.

The “innocent” spouse’s need for money to pay offshore lawyers and the very high cost, generally, of waging war beyond one’s own borders is the greatest weapon in the armory of “guilty” spouses. Typically, the spouse who has hidden the funds, is the one who has most of the money to play with at divorce time. Simple economic imbalance at the time of the litigation is a potent factor in protecting hidden offshore assets from attack. Geographical location is another. Getting to the Cook Islands from Canada takes around 28 hours by air, with a couple of stops along the way. That said, if a strong enough case can be made in Canadian courts, that a spouse is concealing assets and refuses to reveal details or repatriate, if ordered to do so, then enforcement action may be directed toward such spouse. Ultimately, such a spouse could be imprisoned in Canada until he or she cooperates.

Not every party to matrimonial property ligation has exposure to offshore assets. But in today’s international economy, there are currently around one million Canadians living and working overseas. Many sophisticated business people, even if they have not lived offshore, are aware of the advantages of keeping assets out of reach of creditors and unhappy spouses. Keeping assets offshore can provide delay and difficulty for the ‘innocent” spouse. Ultimately, the cost of trying to locate and repatriate assets may provide a valuable incentive to settle on terms advantageous to the ‘guilty” party. The offshore context is therefore something that needs to be considered in many matrimonial suits.

Andrew Rogerson is an Ontario lawyer practicing in the fields of asset protection and estate planning.  He has many years experience in offshore tax havens, creating and both attacking and defending trust settlements.  You are invited to  The Rogerson Law Group website www.rogersonlaw.com  and may email him to ask questions andrew@rogersonlaw.com