This post was written by Leila A. Amineddoleh, Esq., Partner & co-founder at Galluzzo & Amineddoleh LLP. As the Galluzzo & Amineddoleh website mentions, Ms. Amineddoleh “has been published extensively on issues related to art, cultural heritage, and intellectual property, and has appeared in major news outlets, including the New YorkTimes, Forbes Magazine, TIME Magazine, and the Wall Street Journal.” Ms. Amineddoleh’s post discusses how art assets may be hidden from divorcing spouses, creditors & others. It is also the 29th post at the Asset Search Blog’s “Divorce & Hidden Money” series:
In an entry that was published on this blog, I discussed the ways in which art collectors use undisclosed art holdings and valuation uncertainties to evade legal responsibilities (such as payment of tax bills of alimony to divorced spouses). Just as Audrey Hepburn’s character discovered that her husband hid his wealth in three valuable stamps in the 1963 film “Charade,” art collectors have been using their collections to hide value for years. Difficulties related to valuation arise, particularly when it becomes impossible to locate the artwork or determine the identity of the actual owner. But with breaking news about the “Panama Papers,” suspicion about art’s role in the obstruction of justice and concealment of funds has been confirmed again. Wealthy individuals are using artwork as an investment tool and they are shielding these holdings through shell companies and misleading tools. In light of these facts, the art world is once again coming under scrutiny.
The art market is one of the least regulated markets in the world, as transactions are completed without oversight, due to the nature of the trade. It is particularly shocking as the value of the art market is astronomically high. According to Art Market Report, sales of art exceeded $63.8 billion in 2015.
However, there are valid reasons for anonymity in the art world. First and foremost, secrecy is guarded due to security concerns. Whereas tens of millions of dollars in cash are difficult to walk off with, artworks are usually portable. A single lightweight canvas may be worth over $100 million, making the object vulnerable to theft. It is important to protect information about the works in private collections to limit the information available to thieves fixated on the objects.
Another reason to hide information is more personal. Collectors may not want to admit to selling works due to poor cash flow. Some owners are forced to sell works when facing financial hardships. Those individuals do not want this information to become public. At the same time, buyers may not want competing buyers to procure an overabundance of information about their purchases. Art is a personal passion, and something that some collectors do not want made public.
However, art is also used to hide assets, evade taxes, and unfairly withhold value from deserving parties (like creditors or divorcing spouses). This regrettable use of art was confirmed after the leak of the “Panama Papers.” In April, a Panamanian law firm, Mossack Fonseca, experienced a security breach and had over 11 million documents from internal files become public. Although illegal to assist someone in tax evasion, Mossack Fonseca specializes in establishing corporate structures to hide assets. The information in the leak confirmed the suspicion that wealthy individuals use shell companies to hide assets in contemplation of impending divorces or litigation. Continue Reading