“Freeports” for the Art World are Increasingly Popular But to Hide Art from Your Spouse You May Need to Create Your Own “Private Freeport”.
It is very easy to hide pricey art from your spouse if you sense that a divorce filing is imminent. In fact, even before the divorce filing is contemplated, if you are the one who is thinking about a divorce, you can get the artwork out of the grasp of your spouse quite easily by shipping it to what is called a “freeport.”
What is a freeport? A free port is just another word for a private storage space. But it is not just any type of storage. It is used by the superrich as “storage lockers” for their art, wine, jewelry and other treasures. Freeports are often synonymous with “bonded warehouses.” Rich people use freeports for their international trade deals to legally avoid customs duties and taxes.
According to an article in the New York Times, high net worth individuals are increasingly using these freeports to stash expensive artwork and park them there as they appreciate in value. Mostly, the superrich seem to be trying to avoid sales taxes and customs charges but some are probably trying to hide the asset from bill collectors, ex spouses or thieves – or all of the above.
If you are a superrich with a ton of art that could become an issue in a divorce action, of course you have to think about what you want to do about this. Normally, the artwork will be part of your marital estate and will be distributed according to some regime such as community property or equitable distribution. Unless you have a prenup. If you don’t have a prenup, your art could be at risk. But many superrich individuals have successfully hidden artwork away from their spouses in Freeports or other types of storage warehouses across the globe.
There are free ports all over the world but the most popular ones are in Geneva, Zurich, Basel, Monaco, Singapore, Delaware and Luxembourg. If you are trying to hide your artwork, you probably should NOT stash your art in any of these locations because obviously, everybody knows that these are the places that people stash their art. You want to find a whole new and different location that your spouse would never think of to stash it. For example, in Hong Kong, you can get yourself a “private Freeport” where there are no disclosure requirements like there are in freeports. A private Freeport is not a real Freeport in a legal sense. It is really just a glorified private warehouse and storage but the difference is, your spouse will usually never find out that you are the owner of it and that you have all this art stashed there.
The trick is that you have to avoid a fraud charge at all costs. For example, if you stash the art and then try to sell it in a private art deal, great. But you owe a lot of taxes on your gains because no matter where you stash and sell, you still owe the IRS on worldwide income. Plus, if your spouse can prove that you have stashed the art, the judge can always impute the value of the income you are trying to hide. Moreover, beware the Freeport owners who have been known on occasion to commit fraud against stashers of art and have had to have been sued by various owners of artwork in their facilities.
So what is the takeaway? Well, you probably should not try to “hide” artwork from your spouse just so you can avoid paying your spouse a fair share. This is immoral and maybe even illegal. But if you just want to stash some artwork someplace to keep it safe and private, consider just renting or buying a private warehouse in a foreign country. Just be careful because you can’t obviously just stash expensive artwork into a warehouse. The thing that makes freeports so appealing is the security measures taken to protect the artwork. According to wealthmanagement.com:
Freeports have evolved into areas with world-class state-of-the-art facilities that offer users both an immense security infrastructure and white-glove, museum-standard art amenities. The security infrastructure at freeports includes electronic monitoring and armed guards. The services offered generally include controlled temperature and humidity storage, museum-quality handling and packing, restoration, conservation, insurance, shipping, bespoke showrooms, private viewing rooms and office space. Thus, the storage facilities in freeports have become some of the safest places in the world to store art.
So if you are going to hide your art outside of a traditional Freeport, fine. But you have to make sure that where you stash it is safe so that you don’t just lose all of your investment while your busy trying to deceive your spouse.