Offshore Bank Account & Divorce (2018) – Disclosing Offshore Accounts
Many years ago, I clerked for a former Chief Judge for all the General Courts in Virginia State, and his #1 advice to me in the practice of law: always aim before firing.
This is never more true than in situations involving Offshore Accounts and divorce.
Offshore Accounts & Divorce
Typical Example: A married couple with a combined net worth of $5M+ are in the middle of divorce and Wife recently discovered Husband’s offshore accounts.
Family Law Aspect
This wealthy married couple (Husband and Wife for the sake of this example) have grown apart and no longer enjoy each other’s company. As a result, they decide to divorce and during the divorce, Wife uncovers a treasure trove. It turns out Husband has millions of dollars stashed away in offshore funds.
Wife is now in a serious position of leverage on all fronts. First, when it comes to the divorce, Wife is in the top position. Wife has the ability to use this newfound discovery to leverage a better settlement or otherwise continue probing into Husband’s financial affairs.
Oftentimes, Husband will have other issues here he is hiding as well and would prefer that Wife just let sleeping dogs lie. As a result, they agree to a settlement which is much higher than Wife would’ve initially believed available because Wife was unaware of the $9 million that Husband has been hiding offshore.
This is a good thing (at least for Wife).
IRS Offshore Disclosure
On the other hand, this could actually turn out to be a very bad thing for both Husband and Wife. Why? Because the spouses filed married filing jointly (MFJ). Therefore, from the IRS’ perspective, each year the couple filed MFJ is a year in which both spouses will be liable on the tax return.
Therefore, for each year in which the account was not reported and the resulting income was not disclosed to the IRS is another year in which both parties may be subject to significant fines and penalties.
This will impact the amount of money left in the marital settlement, because, if the Internal Revenue Service believes the spouses acted willfully (which it seems like Husband did), then the IRS can come after them for upwards of 50% value of the account per year in penalties.
When this number is multiplied by three or six years depending on how long the audit is for, the penalty can max out at 100% (it used to be 300%, but the IRS was nice enough to limit the penalty to 100% value of the money).
What Do You Do?
Especially when a divorce is acrimonious (and really, when is it not), Wife wants to run off to the IRS and disclose the information she learned about her husband. This is not the best way to go about it; in fact, it is a horrible idea.
You Need to Aim First
Before proactively making any representation to the IRS, Wife needs to get her ducks in a row. The way she can do this, is by contacting an experienced offshore disclosure lawyer in determining what the best method would be for voluntary disclosure.
See, the Internal Revenue Service has made offshore tax enforcement a key priority. So much so, that the IRS is devoting significant resources to the investigation of individuals who have unreported foreign accounts. Moreover, the penalties for undisclosed foreign accounts are very steep and the resulting IRS penalty can literally wipe out the amount of money in the accounts.
Offshore Voluntary Disclosure
The IRS has developed and implemented numerous offshore voluntary disclosure programs designed to safely bring individuals into compliance. These programs are available whether or not the spouse knew or was unaware of the accounts. Moreover, even though the penalties can sometimes be a little steep depending on which program the person enters, typically the clients avoid any criminal prosecution.
Moreover, one spouse can enter the program even if the other spouse does not want to cooperate.
Golding & Golding, A PLC
We have successfully represented clients in more than 1000 streamlined and voluntary disclosure submissions nationwide, and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
- Learn more about the Board-Certified Tax Law Specialist credential
- Learn more about Golding & Golding’s Case Accomplishments
- Learn more about Golding & Golding Testimonials from prior clients
Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.