A fraudulent transfer is a transfer of an asset (1) done with the intent to hinder or delay collection by a creditor or (2) that makes the debtor insolvent without receiving reasonably equivalent value. Fraudulent transfer claims are made by the creditor against the transferee of the transfer.
A Cook Islands trust is often set up as an asset protection method when the debtor is facing potential or current liability. One of the key benefits of trusts in the Cook Islands is that Cook Islands law makes it very difficult for a creditor to pursue a fraudulent transfer claim.
Fraudulent Transfer Laws in the Cook Islands:
Under Cook Islands law, the creditor must prove that:
- The debtor transferred the asset to the trustee with the actual intent to defraud.
- The creditor’s claim began before the transfer.
- The debtor was insolvent at the time of the transfer or became insolvent as a result of the transfer.
The elements of fraudulent transfer in Cook Islands are much harder to prove than in the U.S. In the U.S., there are alternatives to showing actual intent on behalf of the debtor. But in the Cook Islands, the creditor must prove the defendant’s state of mind—a very difficult burden.
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High Burden of Proof
Cook Islands law puts the burden of proof on your creditor to demonstrate beyond a reasonable doubt (the highest standard of proof) that you transferred assets into the trust with the explicit intent to defraud that specific creditor.
Beyond a reasonable doubt is the same standard we use in U.S. criminal courts. Most civil actions in the U.S. (including fraudulent transfer claims) use an easier burden of proof for the creditor.
Statute of Limitations on Fraudulent Transfer Claims in the Cook Islands
Not only is a fraudulent transfer hard to prove in the Cook Islands, but the creditor also has little time to raise the argument.
The Cook Islands has a short statute of limitations for fraudulent transfer claims. Under the law, a creditor must bring a fraudulent transfer claim within one year of the transfer or two years from when the transfer could reasonably have been discovered.
This two-year time period is much shorter than the time periods allowed under most U.S. states.
About the Author
Gideon Alper is an attorney who specializes in asset protection planning. He graduated with honors from Emory University Law School and has been practicing law for almost 15 years.
Gideon and the Alper Law firm have advised thousands of clients about how to protect their assets from creditors.