International Creditors Can Crack Delaware's Notoriously Tough Trusts

International creditors face long odds when their debtor’s assets are stashed away in a Delaware trust, which is purposefully designed to be hard to crack. However, creditors should not be intimidated – a creative, aggressive and multijurisdictional attack can lead to success.

October 26, 2023

Delaware’s strong asset protection laws have long made the U.S. state a destination of choice for individuals and entities around the world looking to set up a trust. International creditors looking to recover assets may feel it insurmountable when they pursue a debtor in Delaware. It is possible to crack Delaware’s notoriously tough trusts by adopting an aggressive multijurisdictional strategy.

Several features make Delaware’s trust law attractive for debtors. The state allows individuals to shield assets through a domestic asset protection trust (DAPT), in which the settlor of the trust is also the trust’s beneficiary. There are various provisions that further protect the DAPT: for example, there are strict requirements for creditors to succeed on claims of fraudulent transfers to the trust. Broad powers for settlors make it difficult to claim the trust is illusory. Delaware law also contains unique provisions that curtail attempts by courts outside of Delaware to apply non-Delaware law to matters involving Delaware DAPTs.

While attempting to access these Delaware trusts is challenging, aggressive multijurisdictional tactics can give creditors an edge:

 

The attractiveness of Delaware’s trusts makes the state a repository of debtor assets and a potential source of high returns for creditors. They should not be intimidated by the trust’s fortress – a creative, multijurisdictional, and focused attack can lead creditors straight to the treasure trove behind the walls.


About Kobre & Kim

Kobre & Kim is a conflict-free Am Law 200 law firm focused on disputes and investigations, often involving fraud and misconduct. 

Often working closely with lawyers in key non-U.S. markets around the world, our Delaware team: