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Offshore accounts can afflict your divorce

The idea of an offshore account might remind you of infamous scandals and criminal activity, but storing money overseas isn’t illegal in itself. Instead, the trouble begins when the owner of a foreign account fails to report the money accurately to the IRS.

While tax evasion is perhaps the most common issue with offshore accounting, it’s not the only reason why someone would fail to report their foreign funds. Too often, account holders hide assets from their spouse during a divorce in other countries.

Although the goal is to keep more marital funds for themselves, this illegal strategy can easily backfire. In many cases, the government can track down hidden assets and seize dishonestly transferred money. Instead of keeping a portion of the funds, the account holder may end up with nothing aside from an indictment.

If your spouse opens an offshore account during your divorce, it might not necessarily be an attempt to hide assets. Your spouse will have to report the transfer of money to the IRS so that it can be distributed fairly during the divorce.

Luckily, even after your spouse hides assets overseas, the value usually isn’t lost forever. Laws have evolved over the past few years to help governments share information to pinpoint concealed funds. In addition, the punishments for false reporting are more severe for holders as well as individuals who help them create secret accounts.

However, it’s still a good idea to inform your attorney and keep an eye on finances to make sure the numbers add up. During the divorce process, both sides will engage in a full financial disclosure, which is called “discovery” in court. This is when you might find out that money has vanished and law enforcement can begin an investigation.

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