The Not So Merry Mary.

Date : March 27, 2008

In keeping with my responsibility to keep you up to date on the top cocktail party grist, I wanted to update the Mary Morris saga.

Some of you might recall Mary Morris. I mentioned her case several years ago. In a nutshell, here is what happened.

As part of a divorce decree giving child custody to Mary’s soon-to-be-ex-husband, he paid her a bonus (aka bribe) of $1,500,000, which she was allowed to keep as long as she did not challenge the divorce decree. I guess he wanted to make a clean break and move on without problems and was willing to pay for it. Some guys will cut off their body parts to not have to deal with their ex.

This unique clause in the divorce decree reads as follows:

In the event that . . . after entry of judgment [Mary] challenges in court any provision in this agreement, the additional consideration paid to [Mary] by [the Husband] to obtain this agreement, … shall be forfeited by [Mary] and if already paid to [Mary], [the Husband] shall retain all rights at law and equity to seek its return.

Well, Mary broke the deal, challenged the divorce judgment and was ordered to repay the $1.5 million bonus plus her husband’s attorney fees of $300,000.

So, Mary broke the deal and was ordered to repay her EX $1,800,000.

So far, no big deal. Here comes the drama. Before breaching the settlement agreement she put her assets into a Cook Island Asset Protection Trust. As a result, when the judge ordered her to repay her husband the bonus he gave her as an inducement to buy peace, she could not do so. Why? Because the foreign trustee refused to distribute money from the trust to satisfy the judge’s order. Naturally, this pissed off the judge (who happened to be the same judge who issued the initial order). The judge, correctly, did not buy this and started the process to throw Mary in the clinker (this is the “Doctrine of Disbelief”, a great term coined by Jay Adkisson).

So, what did Mary do? She split town and lived abroad on distributions from her trust.

Fast forward two years. Mary comes back into town, presents herself to the authorities and is promptly thrown into jail… this time for 120 days.

The bottom line: Mary owes her husband over $1.8 million. I do not think that the offshore trustee will violate the terms of the trust and make a distribution to buy her freedom. She will probably stay in jail for quite some time until she makes peace with the judge and her husband or gets the money. In all likelihood, she will make peace with her husband who has already indicated a desire to tread lightly on his children’s mother.

So, another case decided correctly. The Asset Protection did work; however, it was done at the wrong time and in the wrong way. She lived off the protected funds and treated the Asset Protection Trust as her alter ego while she was on the run.

This case does not stand for the proposition that Asset Protection Trusts do not work. On the contrary, it proves the opposite; however, there is a big price when done incorrectly.

Remember: PIGS DO GET EATEN. She should have retained sufficient unprotected assets to more than satisfy her reasonably anticipated debts. She also should have never lived off the trust, then returned to rely on the fact that the trustee will not give her money to pay her judgment. She deserves to spend some quality time in jail. (Which is constitutionally improper if she really cannot get to the $$$.... but it just feels soooo veery good).

I will report back to you on the outcome and also verify more of the information in this newsletter once I get the legal documents.

My bet, she will pay her husband a few bucks and the matter will be put to bed. I do not think that the trustee will release a penny at this stage. She will probably get out of jail soon and probably keep most of her money. I will let you know.

ABOUT THIS EDITOR:

Rob Lambert, Founder and former law professor is considered to be foremost expert on tax compliant asset protection structures. A contributing editor to Lexus Nexus debtor creditors series of law books Rob's passion is implement client wealth plans that stand the test of time and hold up under duress.

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