Offshore Accounts

Practicing family law in a large metropolitan area like Los Angeles provides a wealth of unique and interesting cases with parties from all over the world. We've worked with clients from Central America, Africa, Asia, Australia, Europe, the UK and the Middle East. The diversity and complexity of these cases is often highlighted during the mandatory disclosure process required in all dissolution proceedings.

The Family Code is very clear that both parties to a dissolution proceeding have a fiduciary duty to the other and each must fully disclose "all material facts and information relating the existence and character of all assets." So, does this mean that Husband needs to disclose his savings account in Egypt? Does wife need to disclose the rental income she receives from her condos in Hong Kong? Or if the property or assets aren't on American soil, do they not "count" in a divorce filed here in Los Angeles?

The answer is resounding and clear - ALL ASSETS MUST BE DISCLOSED no matter where they are! This requirement poses an interesting intersection with federal tax laws that have become increasingly stringent and which are vigilantly pursued by the IRS. The IRS definition of a "U.S. person" covers a multitude more than simply United States' citizens and a "U.S. citizen" is taxed on their worldwide income. Individuals with worldwide assets are required to report these assets. Failure to report in accordance with the Specified Foreign Financial Assets and the FBAR (for taxpayers who file U.S. tax returns and have offshore accounts), can lead to hefty fines.

When a couple files for divorce and is required to disclose foreign assets that may not have been properly reported to the IRS, the parties are exposed to severe tax liability. If either party fails to disclose an asset (s) during a divorce and that asset is later discovered, the court can award up to 100% of the value of that asset to the other spouse in addition to requiring the non-disclosing spouse to pay their spouse's attorney's fees as sanctions.

So what can a party who has failed to report offshore assets do? He or she can simply amend previous tax returns, however there is no guarantee the IRS will not prosecute. Another option is to utilize the Offshore Voluntary Disclosure Program (OVDP), which allows people with previously undisclosed assets and income to become IRS compliant. Entering the OVDP may not get you out of monetary fines, but it would save you from criminal penalties including severe financial fines and jail time.

Categories: 
Related Posts
  • How do I choose a divorce attorney? Read More
  • Child Support Services Department - Things to know Read More
  • Child Support Services Department - Things to know Read More
/