¶ 2601
Overview
Scope of the chapter. This chapter examines the law that decides whether a transfer of digital assets made to protect them from future creditors will hold. It begins with the Uniform Voidable Transactions Act, which governs most avoidance claims brought by creditors under state law, and applies its definitions, its tests of actual and constructive fraud, its remedies and its time limits to transfers of tokens. It then considers the Bankruptcy Code's avoidance and discharge provisions, the domestic asset protection trust statutes, the offshore trust statutes of the Cook Islands, Nevis and Belize, and the contempt power through which a court that cannot reach an asset directly may compel the person who controls it. It closes with the criminal statutes that apply to the same conduct, a planning sequence and a checklist.
What is different about digital assets. Four features of digital assets bear on every question in this chapter. The first is portability: a person who knows a private key can move the asset it controls to any address in the world in minutes, without the cooperation of a bank, a registrar or a transfer agent. The second is the public ledger. Every transfer on a public blockchain is recorded permanently and can be read by anyone, so that a transfer made to hide value leaves a record that tracing firms and courts can follow (see infra ch. 25). The third is that control depends on knowledge. A court that has jurisdiction over a debtor but not over the asset can reach a self-custodied token only by compelling the debtor to use what the debtor knows (see infra ¶ 2680). The fourth is volatility. The value of a token can change by half in a month, and the tests of insolvency and reasonably equivalent value were written for assets whose value moves more slowly (see infra ¶ 2630).
The planner's starting point. The law examined in this chapter does not treat digital assets as a special category. A transfer of bitcoin to a trust is tested by the same statute as a transfer of shares or land, and the same badges of fraud are used to infer intent. What differs is the evidence. The public ledger supplies a record of timing and destination that a conventional transfer may not, and the debtor's knowledge of keys supplies a basis for a finding that the debtor retains control. Protection therefore depends on the same three things it always has: the debtor's solvency when the transfer is made, the absence of any claim in view, and a structure in which the debtor gives up control in fact.
Relation to other chapters and to the companion volume. The characterization of tokens as property is examined in chapter 3, and the conflict of laws in chapter 5. Custody models, which decide who controls a key, are examined in chapter 9. Holding tokens through a limited liability company, and the charging order, are examined in chapter 17. The mechanics of key succession are examined in chapter 22. A judgment creditor's remedies against a debtor's digital assets, including turnover orders and the Fifth Amendment, are examined in chapter 24, and tracing and freezing orders in chapter 25. Avoidance actions brought in the insolvency of an exchange or lender against its customers are examined in chapter 29. The general law of voidable transfers, self-settled trusts and offshore jurisdictions is treated at length in the companion volume, Lighthouse on Asset Protection, which this chapter cites as the fuller discussion where a point is not specific to digital assets.
Terms. In this chapter a transfer has the meaning given by the Uniform Voidable Transactions Act (see infra ¶ 2610.03). A self-custodied asset is one whose key is held by the owner and not by an intermediary. A domestic asset protection trust is a self-settled spendthrift trust created under the statute of an American state that permits the settlor to be a discretionary beneficiary while protecting the trust property from the settlor's creditors (see infra ¶ 2660). An offshore trust is a trust governed by the law of a jurisdiction outside the United States whose statute limits the claims of foreign creditors (see infra ¶ 2670). A repatriation order is an order directing a person to return assets held abroad to the jurisdiction of the court.