In Leeds LP v. U.S., 2011 WL 3475282 (S.D.Cal., Slip Copy, Aug. 5, 2011), the plaintiffs set up a complex structure of entities owned by themselves, their children and a friend, without any legitimate business activity for the purpose of blocking creditors including the IRS. The court didn’t buy it:
“Although Plaintiffs take the position that each of these entities is a legitimate business, operating independently from the Ballantynes, the Court finds to the contrary. Each of the entities cited above (and virtually all other entities referenced at trial) was owned and controlled by the Ballantynes, their children, their children’s trusts, and/or Ms. Ballantyne’s brother, Ed Cramer. The Court heard no evidence that these entities engaged in any true independent business activity. Instead, during the time periods relevant at trial, nearly all of these entities’ primary function appeared to be to hold the Ballantynes’ assets and/or to create additional entities to be used to hold the Ballantynes’ assets, in order to defeat collection efforts by the IRS and other potential creditors.”
Asset protection must be done in the context of meeting legitimate business or estate planning functions. Creating a shell game won’t work. As Jay Adkisson says:
Any fool can go out and create a form a bunch of entities and generate transactional documents. But entities and transactions are only as effective as they are real — and if the true purpose is simply to defeat creditors then they aren’t real at all.