When marriage comes to an end, Virginia spouses should expect equitable distribution of assets, including offshore accounts. In the past, many foreign accounts have been sheltered from both taxation and division during divorce, but a federal crackdown has made these assets harder to hide.
The Washington Post reported that the International Consortium of Investigative Journalists’ analysis of the leaked Panama Papers underscored that offshoring assets was not just a corporate practice. The documents revealed that in many cases, wealthy persons have used foreign accounts during divorce to conceal funds from their spouses. Unfortunately, finding these properties during marital separation has always been—and remains—a time-consuming and expensive process.
At the same time, modern innovations and legislation have streamlined the process of detecting offshore accounts. Although electronic banking has certainly made it simpler to set up such an account, the sudden disappearance of funds raises a red flag for legal and investigative teams. Furthermore, countries that historically have been popular destinations for offshore accounts have recently sought to make financial information more transparent and accessible to the United States. This transition was encouraged in part by the Foreign Account Tax Compliance Act passed in 2010.
According to the Internal Revenue Service, FATCA applies both to U.S. citizens with foreign accounts and to foreign financial institutions. Persons who live in the United States must report income on Form 8938 for some foreign assets valued at $50,000 or more if they are single or file taxes independently of their spouses; expatriates must file for assets of $200,000 or more. For couples filing joint income taxes, these thresholds double.
This act also applies to some foreign institutions, including banks, brokers, insurance companies and investment entities. These organizations are required to provide the IRS with certain financial information about offshore accounts held by U.S. citizens.