In Re Portnoy, a 1996 bankruptcy case, was the first in a line of decisions dealing with foreign asset protection trusts (FAPT). In this case, Portnoy personally guaranteed the liabilities of his company. When he became aware that his company was nearing insolvency, he transferred a substantial portion of his property to a Jersey trust and filed for bankruptcy. A major consideration of the court was whether New York or Jersey law would govern. Two factors the court analyzed in choosing New York law were Portnoy’s fraudulent transfer of his assets and the detriment to his creditors, and the fact that all of the parties, excluding the trustee, were located in the U.S.
Portnoy’s general reasoning laid a very strong groundwork for future court’s deciding FAPT trust cases. Future courts would decide against FAPT holders on several other grounds, but at the core of future reasoning is a general disdain for debtors who try to structure their affairs in a way to defrauds creditors. It’s simply not a practice that courts want to condone through their decisions.
See Hale Stewart, Guest Blogger Hale Stewart Analyzes In Re Portnoy (Asset Protection Case), Wealth & Risk Management Blog, June 30, 2017.
