Cook Islands International Relationship Property Trust Act (2021)

An offshore Cook Islands trust has many advantages for those who wish to safeguard their assets and property. Not only can these types of trusts provide a maximum level of protection from creditors, lawsuits, and judgments, but now, they can also offer couples a way to keep their assets intact upon divorce or separation. Significantly, the International Relationship Property Trust Act (2021) was passed by the Parliament of the Cook Islands in December 2021. This new law helps divorcing spouses preserve the value of the offshore trust assets for the benefit of beneficiaries, rather than allow the trust property to be divided by the matrimonial court.

What is the Cook Islands International Relationship Property Trust Act?

The Cook Islands International Relationship Property Trust Act is unique legislation that creates a new class of offshore trust. Aimed at addressing the potential for misconduct concerning the distribution of marital property in a high net worth divorce, the Act helps to ensure that a carefully planned trust is not destroyed when a marriage is dissolved. However, unmarried couples, those who are in second or subsequent marriages, international spouses, and those seeking to protect family business assets can also benefit from the new law.

It’s important to understand that the International Relationship Property Trust Act provides a legal framework. Critically, the effectiveness of the trust itself will depend upon both the applicable provisions of the Act and the terms specified in the instrument.

What Does the New Cook Islands Trust Law Mean for Divorcing Couples?

In a California divorce, a court would split the property acquired during the marriage 50/50 between the spouses, including the assets in many types of trusts. Unless the couple could reach an agreement regarding the division of the trust, the assets would be liquidated and distributed evenly. Not only can the liquidation of the trust assets result in an erosion of value, but any future interest of the couple’s children or grandchildren is disregarded — and the fundamental purpose for which the trust was established is eradicated.

Over the last few decades, Cook Islands offshore trusts have increasingly gained popularity as a critical asset protection strategy and an essential estate planning tool. Unfortunately, amid the strong emotions that often come with a high net worth divorce, spouses don’t always think about the long-term ramifications liquidating a Cook Islands trust can have for future generations. The new legislation ensures that the assets placed in a Cook Islands trust remain intact and cannot be divided should a couple decide to go their separate ways.

Benefits Provided by the Cook Islands International Relationship Trust Act

A Cook Islands trust offers a number of advantages — there is no perpetuity period, the details remain private, and U.S. judgments are not recognized. In addition, there are a wide variety of assets that these types of trusts can shield, ranging from intellectual property to investment portfolios, real estate, and retirement accounts. Long regarded as a favorable jurisdiction for setting up asset protection trusts due to its favorable laws and legitimate trustees, the International Relationship Property Trust Act now offers additional benefits for non-residents who set up a Cook Islands trust.

Under the International Relationship Property Trust Act, a Cook Islands trust can offer the following advantages:

• Reduce litigation regarding assets during the divorce process
• Restrict the ability of the matrimonial court to divide and distribute trust assets
• Protect the interests of future generations
• Prevent the fire sale of assets by spouses who do not have financial expertise
• Provide special protections for the assets of a family business

While prenuptial agreements can be a useful tool when it comes to protecting assets during divorce, their effectiveness is sometimes limited, because a court will always consider whether it is reasonable, a subjective determination. If a prenup is fraudulent, was coerced, or appears to be one-sided or unfair to the court, it can be thrown out. However, a matrimonial court in the U.S. has no jurisdiction over distributing the assets held in a Cook Islands trust, making these types of trusts a prime asset protection strategy.

Contact an Experienced Offshore Asset Protection Attorney in California

By setting up a trust in a foreign jurisdiction, such as the Cook Islands, you can protect your hard-earned assets and family wealth from creditors, lawsuits, and divorce. If you are considering establishing an offshore trust, it’s best to work with an experienced attorney who can advise you. The attorneys at White & Bright, LLP are skilled at handling matters pertaining to offshore trusts and helping clients safeguard their assets. Call us to schedule a consultation.