Jeff Diamant, a leading marital / divorce fraud lawyer, was recently cited and quoted in the Wall Street Journal on the billion-dollar Harris County divorce Bosarge case. You can read the full text here (below) or see the article online by clicking here.
A High-Stakes Divorce Illustrates How the Rich Play Real-Estate Tug of War
A Houston billionaire is accused of using a complex web of trusts and limited liability companies to prevent his wife from accessing cash and the 13 homes they acquired together
By Candace Taylor
April 9, 2020 2:56 pm ET
In 2011, Texas financier Wilbur Edwin “Ed” Bosarge and his wife of 22 years, Marie Bosarge, used a trust to buy, for about $45 million, a flat on Belgrave Square in London, an area nicknamed “Billionaire Square.” Mrs. Bosarge said she then set about decorating the home with the help of interior designers.
Flying back and forth between London and Houston over the next two years, she said she hand-selected furnishings, such as wallpaper in a nautical “Tradewinds” pattern in a nod to the couple’s love of sailing. She even ordered custom wooden trays for the kitchen monogrammed with the names Ed and Marie.
She said she never got to see them.
Marie and Wilbur Edwin ‘Ed’ Bosarge during a Houston event in 2012. PHOTO: DAVE ROSSMAN
By the time the home’s décor was complete, Mrs. Bosarge said, her husband had left her for his 20-something Russian mistress. “He moved her in instead of me,” Mrs. Bosarge recalled.
As their high-profile divorce battle rages in Houston, Mrs. Bosarge said she can no longer access the London flat or any of the roughly 12 other luxury homes the couple acquired during their marriage, including a private island in the Bahamas and mansions in Aspen and Houston. Meanwhile her husband—the 80-year-old co-founder of the high-frequency trading firm Quantlab Financial—comes and goes between the homes as he pleases, according to documents filed as part of their contentious divorce.
It is certainly not unusual for couples to fight over their homes during a divorce. But the Bosarges—like many ultrawealthy people across the globe—own their homes through a complex network of trusts and limited liability companies. Now that they are divorcing, Mrs. Bosarge said her husband is using these complex ownership structures—over which she alleges Mr. Bosarge retains full control—to essentially eliminate her stake in the homes, and to prevent her from accessing what she said is billions in cash and other property.
When Chateau Carnarvon listed in 2014 for $43 million, it was the most expensive home ever to go on the market in Houston. PHOTO: ROB MUIR
At issue in the case are a variety of assets held in trust in South Dakota, according to court filings and trust documents to which Mrs. Bosarge has gained access. South Dakota has become popular in recent years as a tax haven for wealthy people from all over the world.
Mr. Bosarge is an Alabama native who is well-known in Houston for his lavish parties and the ubiquitous beret atop his bald head. In court documents, his attorneys said Mrs. Bosarge has insufficient evidence to prove that any community property is included in the current trusts. Moreover, they noted that the beneficiaries of the trusts include not just Mrs. Bosarge but also Mr. Bosarge’s two children from a previous marriage and his grandchildren. In general, depending upon how a trust is structured, beneficiaries may be prevented from accessing the underlying assets until the occurrence of an event or timetable defined by the trust’s creator, according to several trust attorneys.
In response to a request for comment, Mr. Bosarge’s attorneys said some of Mrs. Bosarge’s allegations are false, but declined to specify which ones, citing court orders that they said prevent them from discussing the case.
The high-profile case provides a rare glimpse into the secretive and complex mechanisms ultrahigh-net-worth individuals use to buy real estate and move their money around the globe. The case had been slated to go to trial in April but has been postponed due to Mr. Bosarge’s health and the coronavirus pandemic.
What’s At Stake
A look at some of the estates owned by the Bosarges and various trusts, including a 27,000-square-foot chateau in Houston and a 72-acre private island in the Bahamas.
The grounds of Chateau Carnarvon. PHOTO: MARK THOMAS
The wealthy have long used trusts and overseas accounts to reduce their tax burden, but attorneys said these structures are becoming more complex. Jeff Diamant, a Houston civil commercial and divorce trial attorney who is not involved in the Bosarge case but is familiar with it, called these structures “akin to a semi-legal form of money laundering.” These ownership vehicles are often used for legitimate estate-planning purposes or to allow high-profile people to buy homes anonymously, he said, but in a divorce they are sometimes used by one spouse to improperly keep assets out of the other’s grasp.
A high-profile example is the divorce of Russian oligarch Dmitry Rybolovlev and his then-wife Elena Rybolovleva. In 2013, Ms. Rybolovleva filed a lawsuit alleging that her husband used trusts to purchase real estate, including an $88 million Manhattan condo and $23 million of real estate in Hawaii, to protect money that she could potentially win in their divorce. Mr. Rybolovlev denied the allegations. In 2014, he was ordered to pay his wife roughly $4.5 billion in what was then billed as the world’s most expensive divorce, though the amount was later reduced to roughly $600 million.
Mrs. Bosarge, 66, said that nearly all of their homes, possessions and much of their money was either acquired through or transferred into a series of ever-changing trusts overseas and in South Dakota. Due to the secretive nature of the trusts, the exact amount is not known. Mrs. Bosarge’s attorneys have identified up to $2 billion they claim is held in trust. Mr. Bosarge said in an October 2019 deposition that trust assets were worth at least $800 million at the time. His attorneys argue that those assets are controlled not by him but by the trusts. They allege the couple’s community estate—which Mr. Diamant said is usually split evenly between divorced spouses in Texas—is about $12 million.
The Bosarges’ home on North Boulevard in Houston, a circa-1920s Mediterranean-style house they bought in the 1990s but significantly expanded over the years. PHOTO: CLAUDIA CASBARIAN FOR THE WALL STREET JOURNAL
In court filings, Mrs. Bosarge’s attorneys claim that Mr. Bosarge used these trusts “to hide income and assets and to keep income and property which would otherwise have been in the community estate out of the estate.” Meanwhile, Mr. Bosarge structured the trusts so he “has had exclusive use and control of most of the parties’ assets,” the filings state.
For now, Mrs. Bosarge said she has virtually no cash flow and is struggling to pay her legal fees. “I’m not trying to do anything but get a fair share so I can move on,” Mrs. Bosarge said. “I’m just wondering if other women have had this happen to them. It just frightens me.”
Mrs. Bosarge’s attorneys allege that some of Mr. Bosarge’s assets are held in offshore trusts. U.S. courts don’t have jurisdiction over those trusts, Mr. Diamant said. Other assets are allegedly held in trust in South Dakota, a state that Mr. Diamant said has “the strongest laws protecting trusts.” Several divorce attorneys and others familiar with trust law said they know of no precedent in which an aggrieved spouse has successfully accessed the assets in a South Dakota trust in a court-ordered divorce settlement.
In 2008, the Bosarges acquired, for about $250 million, a 72-acre private island and built infrastructure such as a dock, Mrs. Bosarge said. They built four houses on the island—one for themselves, a guest house, a home for each of Mr. Bosarge’s two children—plus staff quarters. The property is now a resort, which is owned by a Bosarge trust. PHOTO: GOOGLE EARTH
The state of South Dakota now houses about $900 billion in trust assets, according to estimates by state Sen. Susan Wismer, a Democrat who is an accountant and who has opposed recent legislation making South Dakota more favorable to trusts. The state’s trust industry started about 30 years ago, she said, when South Dakota abolished its Rule Against Perpetuities, allowing trusts established there to last forever. South Dakota also doesn’t impose income taxes on trusts created by or for nonresidents. “That created a great tax environment for people from out of state who wanted to bring their assets here,” Ms. Wismer said.
Since then, the state has added additional laws to protect the assets and secrecy of trusts established in the state, she said.
For example, once a South Dakota trust is two years old, it is immune from a creditor claiming a share of the assets it contains. A South Dakotan trust is confidential, with court documents relating to it kept private. The state’s laws don’t even require the beneficiaries of trusts to be notified of changes to the trust, even if the assets of the trusts are “decanted,” moved to another trust of which they are not a beneficiary.
Through a trust, the Bosarges acquired a flat in this building in Belgrave Square for $45 million in 2011. PHOTO: GOOGLE MAPS
South Dakota trust laws are attractive to families in part because of their privacy provisions, said Thomas E. Simmons, a professor at the University of South Dakota School of Law. For example, in an irrevocable trust set up by a parent, he said, “a provision…which suspends distribution to one of the children in the event they develop a gambling problem again might very well be a provision that the family would not prefer to see circulating among anyone who’s curious about the family.”
Due to these laws, even if Mrs. Bosarge were to win in divorce court, it might be impossible for her to collect the money held in South Dakota trusts, said Mr. Diamant.
“She may end up with a judgment against her husband that he’s committed fraud or breached his fiduciary duty to her, but then be unable to go into South Dakota and collect by taking assets out of those trusts,” he said.
The Bosarges were married in 1989. Mr. Bosarge and business partner Bruce Eames launched Quantab in 1998, with Mrs. Bosarge answering the phones, she said.
Quantlab went on to become a leader in the field of high-frequency trading, and the Bosarges spent their newfound wealth lavishly, buying three yachts, art, antiques and a bevy of homes, she said. At one point they even had a mummy and its sarcophagus on display in one of their two Houston homes, which spooked Mr. Bosarge’s grandchildren, Mrs. Bosarge recalled.
According to public records, all of the homes, except a Houston property they bought in the 1990s, are owned in various limited liability companies or trusts. These include “100 Carnarvon LLC,” which owns their 27,000-square-foot house on Houston’s Carnarvon Drive, which they called Chateau Carnarvon.
The Bosarges, through LLCs owned in trust, acquired three homes in Boothbay, Me. PHOTO: GOOGLE EARTH
In 2013, she said her husband told her he was leaving her. “I was totally in shock,” she said. “I was in love with this man.” She said she later learned about his girlfriend, Russian socialite Ana Kostenkova. Ms. Kostenkova didn’t respond to requests for comment.
Once separated, Mrs. Bosarge claims she was asked to sign an agreement with 100 Carnarvon LLC in order to continue living at Chateau Carnarvon. “I had to sign a lease to be in my home,” she recalled.
Then in 2017, after her husband officially filed for divorce, she said she received paperwork from the LLC evicting her from the house just a few weeks before Christmas. “It was humiliating,” she said.
The Bosarges acquired two homes in Southport, Me., through LLCs owned in trust. PHOTO: GOOGLE EARTH
Court documents describe how, starting in 1983, Mr. Bosarge created a web of trusts and other entities, which he used over the years to purchase property and conduct his business.“I asked him if it was legal,” Mrs. Bosarge said. “He said it was for my protection, not to worry about it, and it was for tax reasons.”
“I asked him if it was legal,” Mrs. Bosarge said. “He said it was for my protection, not to worry about it, and it was for tax reasons.”
Mrs. Bosage’s attorneys claim that after Mr. Bosarge began his affair with Ms. Kostenkova, around 2012, he took steps to “substantially reduce, if not eliminate, Marie’s interest in the trusts and subsidiary entities,” in part by moving assets into South Dakota trusts.
For example, divorce filings claim that then-trust protector of one of Mr. Bosarge’s South Dakota trusts, a longtime Bosarge employee named Eric Schaeffer, directed the trust not to notify or send statements to trust beneficiaries, including Mrs. Bosarge. Mr. Schaeffer didn’t respond to requests for comment. South Dakota laws don’t require that beneficiaries be notified of changes to a trust.
Mrs. Bosarge said that even a yellow-diamond necklace her husband gave her for Christmas one year was owned by a trust called NBT Associates LLC, which sued her in 2018 for its return as well as the return of furnishings and art she took when she moved out of Chateau Carnarvon. “We’ve been married for over 30 years,” she said. “It’s hard, very hard.”