Where Is The Money Hidden?

Chapter in “The Joy of an Ex” published by ‘Divorce Choices’

By Andrew Rogerson LLB (Hons) TEP

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. Immigrants to Canada are permitted to hold assets in an offshore   trust and pay no tax on interest earned for the first 60 months of their residence   in Canada. The Double Tax Treaty with Barbados provides for an effective 2.5%   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.   As a result, there is 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, they are not owned by your spouse.   Even with a simple offshore bank account, secrecy laws in the relevant jurisdiction   may prevent you from obtaining information. And, of course, your spouse may   not oblige by admitting having the account. The money is sitting there, just   waiting for the day that the 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 spouse’s   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. Geographic 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.