Court Denies Creditor’s Attempt to Invalidate Delaware Asset Protection Trust
In the matter of the CES 2007 Trust, C.A. No. 2023-0925-SEM (May 2, 2025)
In 2014, Can IV Packard Square, LLC (the “Petitioner”) loaned funds to a company owned by Craig Schubiner (the “Respondent”). The deal soured and in 2018, Petitioner sued Respondent for repayment and additional relief. In 2019, a Michigan court awarded Petitioner a $14 million judgment which Respondent maintains he does not have the assets to cover.
In an effort to acquire the redress owed to it by Respondent, Petitioner seeks to invalidate Respondent’s CES 2007 Trust (the “Trust”), of which the Respondent is a beneficiary, under the assertion that it is a “sham” used only to avoid paying the Michigan judgement. The Trust is a Delaware Asset Protection Trust created in 2007, years before the parties’ dispute. The Trust’s assets are 90% interests in three Delaware LLCs held principally for the benefit of the Respondent’s family.
The requirements of a Delaware Asset Protection Trust are that the asset transfer be a “qualified disposition” to a “qualified trustee” and that the trust agreement invokes Delaware law, includes a spendthrift provision, and is irrevocable. In this case, Magistrate Molina found that the Trust satisfies all criteria necessary to benefit from statutory asset protection.
Petitioner nonetheless claimed that even if the Trust is an Asset Protection Trust, its spendthrift provision should be invalidated as a matter of common law. The Magistrate generally agreed that such an invalidation can be carried out but she did not agree that it should be in this instance. As explained in 2002 by Vice Chancellor Jacobs in Kulp v. Timmons[1], invalidation is only appropriate when a spendthrift provision is created purely for the grantor’s benefit or when the beneficiary and the Grantor have the same interest. After finding that neither of those situations is the case in this instance, the Magistrate granted Respondent’s motion to dismiss.
This decision is not the first Delaware case dealing with a challenge to a Delaware Asset Protection Trust by a creditor. In the 2015 case, Trustco Bank v. Mathews, et al.[2], Vice Chancellor Parsons held that a creditor’s fraudulent transfer claims were time-barred. While addressing different issues and claims, the Mathews and CES 2007 Trust decisions are complementary. Together, these cases strengthen Delaware Asset Protection Trusts against a range of creditors’ claims.
[1] 944 A.2d 1023 (Del. Ch. 2002)
[2] C.A. No. 8374-VCP, 2015 Del. Ch. LEXIS 18 (Del. Ch. Jan. 22, 2015)
This blog entry was co-authored by Autumn Moore.
