Well there is alot that can be said about Tiger Woods’ extra-marital behavior and divine retribution. However, the thing that sticks out in the legal professional part of my brain is how poorly advised he was. His much hyped advisors took a great deal of credit for their cleverness in negotiating an extra basis point here and there on his endorsement contracts. However, while they were helping Tiger pick nickels up off the sidewalk, they failed to notice or warn him about the economic steamroller that was bearing down on him. Presumably he spent a great deal of money on legal advice relating for a prenuptial agreement to try and limit the amount of money his wife would get after 10 years of marriage (rumored at 10 million). This probably included independent legal advice to her to ensure that it would stand up to future challenge. However, when he mentioned that he would like to buy a home in California, where were his clever advisors?

As one high powered divorce lawyer I work with quips , California treats prenuptial agreements as “not even an interesting starting point for discussion”. If I was Elin’s advisor (presumably she is hiring someone much cleverer than me!), the strategy would be very obvious. I would call Mr. Woods and his team and lay out the following options:

“Option A) Mr. Woods, my client will be bringing a divorce action in California. As your advisors can confirm, in this jurisdiction your prenuptial is meaningless and we will be seeking 1/2 of all the assets accumulated during the time of the marriage, along with substantial child and spousal support. That number is (insert outrageously high figure here). As your advisors will confirm, the numbers I quote are quite a realistic outcome in California.

We will agree to a settlement of (insert completely outrageous figure here) to settle this matter right now. We will agree to giving equal access to the children, non-disclosure of the settlement, and a mutual agreement not to discuss the marriage, your infidelity, or anything other than what a wonderful father I am sure you will continue to be in the future. This will allow you to immediately get off the front pages and get on with the job of rebuilding Brand Tiger in order to regain your wealth.

Option B) You can fight on the California jurisdiction issue. You may win or you may lose. However every day you fight, you will be tabloid fodder. As a man who is already 16 over par in the marriage department, this will probably kill forever your ability to generate significant future revenue from Brand Tiger. In addition, if we win or almost win on the California jurisdiction for family law, you can rest assured that the state of California will take great interest in trying to apply California State tax against your past and current income. As a result of even getting into a legal discussion about jurisdiction, you may very well end up losing even more than our offer in Option A), along with destroying your ability to make money in the future.

As someone who named his yacht, “Privacy”, I am glad to see that you have appreciated the wisdom of Option A). Please sign the agreement here, here and here. My client’s new bank details are on this piece of paper and we look forward to immediate receipt of your liquid assets and the balance of the settlement by the end of January. This should certainly give you time to sell or mortgage your non-liquid assets.”

The moral of the story is that individuals who are relying on pre-nuptial or co-habitation agreements to protect their wealth in case your current relationship falters, should have in the forefront of their minds the dangers of making connections with jurisdictions like California, New Jersey, New York or the U.K. Are your advisors on the ball?

During recent trips to London and New York City, I noticed that usually crowded high-end restaurants are now half-empty LINK.  It is not only the absence of vanquished “Masters of the Universe” that is causing this phenomena. The remaining wealthy who used to want to be out at the trendiest hotspots to “see and be seen” are now much more shy about displaying their wealth. And for good reason.

Ostentatious behavior can make one an excellent target for eager tax authorities, divorcing spouses and hungry fellow citizens who are desperately looking for the few remaining deep pockets LINK. 

Already the Inland Revenue in the UK has formed a special unit to target “fat cats and celebs” LINK. 

Prudent UHNWIs are increasingly taking steps to protect their remaining wealth. Home security systems may work fine for keeping out home invaders LINK but they will not stop tax authorities or divorce petitions, no matter how unjustified their claims may seem. The smart ones are busy putting into place possible future exit strategies of foreign citizenships and residence to protect them should the “legal” muggers start to get too close. Given the speed and enthusiasm of legislators for increasing tax rates and for divorce lawyers to draft divorce petitions, time is of the essence to start to put together these plans. Even with all due speed and diligence they require months to properly construct.

As one recent client from California said to me, “My financial house is not on fire yet, but I can smell smoke coming down the canyon. I am not waiting to hear sirens before I get fire insurance and make sure my suitcase is in the car and gas is in the tank.”

David S. Lesperance, Barrister and Solicitor

Now that it appears that he has won a narrow victory that will keep President Chavez’s in power in the future, wealthy Venezuelans know that they will be asked to stump up to pay for his government’s policies. This is especially true as plummeting oil prices means that this traditional source of bread and circuses is no longer available. It is for this reason that they are already looking to take themselves and their assets out of his ever tightening grip.

Given its familiarity, the wealthy often first look to Miami as a destination . In fact there has been a well documented transfer of wealth and people from Venezuela to South Florida since Hugo Chavez took power LINK. While most immigrants will be able to comfortably reestablish themselves in Southern Florida, this strategy is not the wisest move for the wealthiest members of Venezuelan society. High US income, capital gain and estate taxes, liberal (by Venezuelan standards) divorce settlements and no financial privacy (which can expose family members remaining in Venezuela to kidnapping) makes a move to Miami like a jump out of the pot and into the fire. Strategic planning rather than reactive panic is essential.

Recently I was part of a team of lawyers who advised a wealthy family on how to establish themselves outside of Venezuela (including an estate in Florida) is such a way as to reproduce their prior standard of living while preserving their assets that they can pass on to their children and grandchildren. We also ensured their continuing ability to travel even if Chavez decided to cancel their Venezuelan passports in an effort to exert pressure on them. Finally we devised a legal practical strategy to get their assets out of Venezuela and protect their remaining investments in that country. As with an well thought out and executed strategy the key is to start as early as possible to avoid the mad rush out the door. 

David S. Lesperance, Barrister and Solicitor

Once upon a time, it was possible to stop by a bank in a jurisdiction with “bank secrecy” and set up an account which you could reasonably expect would never come to the attention of tax authorities in your home country. However, most experts would agree that those days are over and all those accounts (even if they were set up by your grandfather) will be flushed out within the next year or two. This is a result of a combination of factors including the Qualified Intermediary Regime, Mutual Legal Assistance Treaties and better data mining capabilities of authorities. In addition, the actions of Whistleblowers such as Heinrich Kieber who turned over all the names of account holders for Liechtenstein Bank LGT, and  Rudolf Elmer, chief operating officer for the Julius Baer Swiss bank office in Grand Cayman LINK has resulted in a flood of previously concealed non-compliant accounts coming to the forefront. 

 The most public example of this phenomena of noose tightening on non-compliant offshore accounts is UBS. Yesterday, UBS announced a long awaited agreement with the U.S. Justice Department where they agreed to pay an extraordinary $780 Million and turn over the names of holders of undeclared accounts.  However UBS is just the crest of a tsunami of disclosure as every financial institution in the world is feeling the pressure LINK. Former gaps in the Qualified Intermediary Regime are also rapidly being closed and investigative powers are being beefed LINK  LINK up by Carl Levin and his colleagues in the U.S. Congress.

Carl Levin

Non-American account holders should also be nervous, as they may be the “dolphins in the tuna nets” whose accounts are first discovered by the U.S., Germany or the U.K. who then turn the information over to the relevant home jurisdiction. This international sharing of information is exactly what happened in the LGT case, where Germany was the first recipient of the stolen information.

As the authorities close in, wise account holders are taking advantage of the fact that their portfolios are currently depressed to engage in voluntary disclosures with tax authorities LINK. In many cases, given that only the last 5 or 6 years of income and capital gain need be brought up to date, the tax bill (with interest) is relatively palatable. Certainly more palatable then having the window of voluntary disclosure closed when the authorities get their names and will take nothing less than full tax, interest and civil and criminal penalties. In addition, once the account holder “comes clean”  they can then plan to properly and legally reduce or eliminate their future tax liability through expatriation or relocation.

However for those holders of non-compliant accounts who continue to hope that their accounts will somehow avoid pending discovery because of the traditional helpfulness of their personal account managers, I wish to point out the fact that Mr. Kieber was not an account manager. Rather he was someone in the IT department who had access to computer files. In today’s modern financial institution, one’s “secret account information” is available to a large number of employees. As Mr. Kieber discovered, stealing information and selling it to tax authorities is highly profitable (in the millions) for disgruntled former bank employees. Given layoffs in that industry, one doesn’t have to be a conspiracy theorist to believe that at least one or two of those boxes leaving in the arms of discharged employees contains more than family photos.   

David S. Lesperance, Barrister and Solicitor 

 As world and local economic conditions worsen, the ethnic Chinese community in Indonesia are again getting nervous. Although they are leaders in the business community and control large parts of the Indonesian economy, the challenging global economic crisis is causing political leaders to again attack them rather than accept blame for some of the economic woes. As with the Jewish Diaspora in Europe during the 1920s and 1930s and the Indonesian Ethnic Chinese during the previous Asian economic crisis of 1998 LINK, politicians are able to convince the masses that their problems are caused by the visibly wealthy amongst them. The result can be not only harassment, but nationalization of property and businesses, and even threats to physical safety.

UHNW Ethnic Chinese in Indonesia are deciding that it is the better part of prudence that they spend a small portion of their wealth diversifying their Passport Portfolios™. Recognizing that they are vulnerable if their only passport is an Indonesian one that can be cancelled at any time, they are looking to immediately secure another citizenship and passport that will give them the ability to leave Indonesia or continue travelling while they are abroad. In addition, they are discovering that this additional passport allows them better visa-free travel then their existing Indonesian passport. Along with a second citizenship, they are also securing homes, offices, and residence permits that will allow them to immediate reproduce their Indonesian lifestyles at safe locations abroad. During a recent business trip to Singapore, various private client advisors I met with confirmed the increasing interest in this area. As with the logic behind buying fire insurance, it is prudent to plan for what may be a remote possibility, but one that if it occurs is devastating.

David S. Lesperance, Barrister and Solicitor

One can hardly turn on the news or look at the magazine stands without hearing about another high profile nasty divorce. Sometimes it’s between the rich and famous and sometimes just the rich. However, for those going through the ordeal, there is no doubt that the process takes a tremendous toll on each parties mental health, not to mention the wealthier partner’s bottom line. Obviously, planning for separation when getting married allows for a smooth predictable transition from marriage to single for both adults and a much great easier time for the children.

The current edition of the Economist, details the decisive impact of residency and citizenship on divorce and custody LINK. As the article outlined, the venue chosen to petition a divorce will have a dramatic effect on the final financial and custody arrangements. Furthermore, different venues will treat pre-nuptial agreements and asset protection trusts (including custody arrangements) quite differently.

With divorce being better than 65% in marriages of the UHNW and an almost certainty when one looks at multiple generations, pre-marital planning for custody, asset division and alimony arrangements is as essential as planning for the other certainty….death. As one of my happily married clients pointed out to me, my principal worry is not my husband and I getting divorced, it is just that we have no control over who our cute 14 year old daughter will eventually marry. We just don’t want the family’s wealth, privacy and happiness compromised in case there is a future “son-in law shot” . In other words, like in golf, when your children marry, it is sometimes not what you were hoping for.

David S. Lesperance, Barrister and Solicitor

The next more severe curse after “May you live in Interesting Times” is “May you come to the attention of the Authorities.”  Unfortunately for wealthy business people in Russia, this curse has become an increasingly real possibility  This trend certainly looks to become a route as Vladimir Putin is coming under intense pressure from the masses to ease the pending pain of the world fiscal crisis  .

Two weeks ago, I had an opportunity to share a drink in London with well-know international lawyer Robert Amsterdam LINK. During our conversation, we discussed one of Robert’s best know clients Mikhail Khodorkovsky. Mr. Khodorkovsky, was the founder of Russia’s largest oil company, Yukos Oil and was arrested and later imprisoned after Russian leader Vladimir Putin seized his company and charged him with tax fraud in 2003 LINK. Robert and I discussed how differently things would have been if Mr. Khodorkovsky had more than just a Russian passport in his Passport Portfolio, when his arguments with Mr. Putin began. With additional citizenships and residences in place, he may have avoided arrest entirely or been freed by diplomatic pressure brought by the foreign countries where he also had citizenship or residence. Being located outside of Russia and having an unrestricted ability to travel globally and operate in countries where international law prevails, Mr. Khodorkovsky would have been able to put forward a proper and successful defense to the fraud charges. He probably would have been able to successfully stop the ultimate seizure and sale of Yukos Oil and avoided eight years of imprisonment.

While Russia is one country where the wealthy are coming increasing to the “attention of the Authorities,” it is by no means the only place. Other countries which do not have a history of “the Rule of Law” are also sweeping their wealthy off the streets, denying them legal counsel and seizing their assets. In November, Billionaire Chinese businessman Huang Guangyu was snatched by authorities who not only didn’t formally arrest him, they even refused to confirm that he was in custody . This was not the first time that China had done this  and with the deepening of the financial downturn, it isn’t difficult to speculate that it won’t be the last. In this poor global economy, an increasing number of countries (especially those dependent on now- depressed oil and commodity prices like Iran, the Gulf States, South Africa, Nigeria and Venezuela) will become tempted to look at “seizing” or “nationalizing” private assets for their own benefit.

While some would argue that Mr. Khodorkovsky and Mr. Guangyu must have been criminals and therefore deserved to be arrested and convicted, lawyers like Robert and I would remind them of that fine human rights tradition regarding the “presumption of innocence” LINK. As in many things in life, those who rely on others (including the state) to guarantee those rights may be gravely disappointed. The survivors will be those who took the personal responsibility to protect themselves, their family and their wealth.

David S. Lesperance, Barrister and Solicitor 

This is the first of a series of ancient Chinese Curses LINK, and few people on earth would challenge that these are VERY interesting times. In order to survive and even thrive during interesting times, people must throw away old assumptions, shake off their inertia, and seek knowledge and solutions that may have seemed arcane or farfetched in the past.

As you may have read and learned in other areas on this site, for years I have been helping clients acclimate to changes in their world using Passport Portfolio™ Diversification. This blog, will be dedicated to examining the most significant events and identify the emerging trends which could impact my clients and their advisors. Along with contributions from myself and other members of my firm, I have also invited Guest Bloggers from the legal, financial, academic, business, media and consulting worlds to provide their unique insights and perspective. Finally, I also look forward to comment and discussion from the readers, in the hope that a particular blog post will spark a conversation that we all find useful. Enjoy.

David S. Lesperance, Barrister and Solicitor