Tax Crime During Divorce: Concealing Assets in Offshore Accounts

Many crucial steps exist in getting the process done right when filing for divorce. If you are not careful, your actions may lead to more severe consequences, including criminal tax charges. Let’s discuss marital fraud and tax evasion to avoid making mistakes during the divorce process.

How is Tax/Marital Fraud Committed?

Even if you think you are unlikely to commit any fraud, divorce is understandably a difficult process. While it can be an easy and short ride, others are far more emotionally tolling and take months to finish—approximately 6 months in California.

It is common for a divorce to cause many emotions, such as feelings of betrayal and anger. Anything can ignite these strong emotions and lead partners to take actions that may later harm them.

For example, in divorce, financial disclosure is critical in determining the marital property value, alimony, and child support. 

However, suppose a spouse fails to report or pay taxes, exaggerates income deductions, or has secret offshore accounts. In that case, their past partner may make accusations of fraud to receive more in the marital settlement.

Why Would You Want to Conceal Assets Anyways?

It’s important to understand why these actions carry such weighted consequences and can even lead to imprisonment. But it’s important to understand why a spouse would want to do this, knowing or not the risks.

Planning to move your assets into a secret, foreign account is one way to minimize a spouse’s tax liability. Although the FBAR, or Report of Foreign Bank and Financial Accounts, and the FATCA, or Foreign Account Tax Compliance Act, exist, many people still choose to conceal these assets fraudulently.

Who has to file an FBAR?

If you are a US citizen/resident/corporation/partnership, you must file if you have:

• Financial interest in or authority over one or more financial accounts that exist outside of the United States
• If you possess foreign accounts with a total exceeding $10,000 any time during the reported calendar year 

Along with other laws, FATCA makes it harder to hide assets in offshore accounts. These means of tracking tax concealment and tax evasion are also applicable to the divorce process as well:

To protect their assets, a wealthy spouse must engage in very illegal actions. They will not only be committing tax fraud but also breaching their fiduciary duties to their marital assets.

Moving US money across the border to avoid losing it during a divorce may come to mind in a time of need. We say the consequences aren’t worth it. Even if your intentions are not to defraud the IRS but to protect your marital assets, the court will not always agree with you.

Take, for example, the case of surgeon Dr. Michael Bradner. Like many others, Dr. Brandner was found guilty of his crimes, wire fraud, and tax evasion, and sentenced to a long time in prison. While you may think that this would never happen to you, that is exactly what Brandner thought as well.

We get it at the end of the day: you’ve worked hard for your savings, properties, cash flow, etc., and are going through a divorce that maybe you didn’t sign up for. You may feel hurt, betrayed, or blindsided, and that is completely understandable.

Your problems can’t be solved illegally—you can either go to court to divide your assets fairly or for tax fraud.

How to Avoid it?

Now that we’ve talked about how and why marital fraud, tax evasion, and tax concealment can affect your divorce, how can you avoid it?

Hiring a pro can help you relax. An accountant or advisor can assess your potential risks and the severity of their allegations while maintaining your confidentiality.

Getting outside help from an expert will also define the potential consequences for both spouses, such as putting marital assets at risk and lessening the ability of the other to pay alimony and/or child support if incarcerated.

To avoid taking action that can expose you to criminal charges, provide protection of your assets, and diffuse the tension between you and your spouse, talk to an accountant or advisor today.

At Miod and Company, we are here to help you