The words “offshore accounts” may conjure images from action movies of people carrying suitcases full of cash around the world with fake passports. In reality, however, investing in offshore accounts is not always this glamorous. Believe it or not, your very regular spouse could be investing funds in offshore accounts. Why? Because it’s easy to do and can be a way to hide assets from you.
Easy to Open
In order to open an offshore account you need to provide roughly the same information that you would provide to your local bank to open an account. Each bank has it’s own requirements, but at a minimum will want your personal information (name, date of birth, address, etc.) and some document to verify your personal information, like a drivers license or passport. Most banks will also require additional assurance by way of a notarized copy of a certain document or a document marked with an “apostilles” stamp.
Of course a bank may also ask for additional information to deter folks from using the account for illegal purposes. It is now becoming common practice for a bank to require financial statements or a letter of good standing from another bank. They may also ask probing questions about where the money you are investing in their bank is coming from; is it your income, is it from another investment account, is it an inheritance? Foreign banks are now required to report your earnings from offshore investments to the IRS, so the banks are now more concerned about making sure the investment is legal.
Easy to Hide
In today’s age there are many factors that make investing in offshore accounts very easy, and a popular channel for a spouse to use to hide assets in divorce.
First, there’s the ease of travel. It is much easier to hop on a plane and get to the Cayman Islands today than it was thirty years ago. You can book the flight from your phone and fly direct from many places in the US.
Next, the Internet has facilitated investing offshore; it provides a way for you to research various banks, the products they offer, and their interest rates, you can find contact information for the banks, and in some cases begin the account opening process all from your computer. Not to mention online banking allows you to move money and access statements in the blink of an eye.
Finally, many banks offer an ATM/Debit card that allows the account owner to withdraw funds at any ATM. So, if you have a bunch of money stashed away in your offshore account, you can still access the cash without completing a wire transfer.
Most people don’t assume their spouse has some sort of hidden offshore asset. Why would you? That kind of stuff is reserved for the very rich or characters in a Hollywood blockbuster. It just doesn’t seem fathomable that the very normal person you shared your life with for twenty years could have something as sexy as an offshore account. Not to mention why would he or she do something so cruel?
The cold hard truth is that just the mention of the word “divorce” can cause money to disappear. Spouses frequently start squirreling away assets when they feel things are getting rocky; some transfer assets to friends or family members, others invest large sums into accounts in their child’s name, and others simply close joint accounts and move the funds into their own accounts. Whatever the method, the fact remains that sometimes assets start disappearing the first time that “D” word is mentioned.
Because investing offshore sounds so glamorous, many spouses simply don’t even consider that their partner would have the means to hide assets offshore. Don’t be that unsuspecting spouse, make sure you leave no stone unturned when you are dividing your marital assets.
Finding the Offshore Account
Review the Tax Return
The IRS has waged a war against offshore investors in recent years. While it was always required that the account owner report offshore investments, many times they did not and unless the IRS audited that individual, those earnings went undetected. The US tax authorities simply did little to nothing to enforce laws on offshore accounts. However, in 2009 everything changed as the tax authorities began to clamp down on offshore investors.
Now, the banks themselves are required to report their customer’s offshore investments, making it harder to actually hide income from these accounts. However, there are still ways to do this. Banks are also now not permitted to protect the confidentiality of their customers; in fact UBS provided the IRS with the names of 4,000 names of investors in order to avoid criminal charges.
Because it is now it is harder for a spouse to use an offshore account as a safe haven to protect an account in divorce, simply reviewing the tax return may provide all the information you need about an offshore investment.
Hire a Forensic Accountant
Maybe your spouse isn’t so regular. Maybe he or she is a world traveler, or an entrepreneur with international offices, or perhaps even you just have a hunch that there is a stash of money somewhere overseas. The signs are there, but nothing seems out of the ordinary on the tax return. What do you do?
Even though the reporting requirements have become stricter, there are still ways in which people can hide assets in offshore accounts. A savvy spouse will find those ways if he or she is determined to protect those funds. In these situations it is best to hire a forensic accountant to investigate.
A forensic accountant will pour through all of the evidence and can find clues and evidence of offshore investing. While this is an added expense for you, chances are if your spouse is going through such great lengths to protect the asset, it is substantial enough to warrant any expense you will bear in hiring the forensic accountant.
If something doesn’t add up, then dig a little deeper. Perhaps you remember that your spouse’s mutual fund had $200,000 but now statements show it is only worth $50,000. The spouse quickly points out that you are just wrong and there was never that much money in the account. Don’t be so quick to accept the spouse’s response at face value.
Additionally, you should worry if your spouse agrees right away to terms that you think are favorable to you. Consider a situation where you ask for more in spousal support than you think your spouse should be willing to pay, yet he or she agrees right away to your proposed amount. Or suppose you propose an unfair property split whereby you would receive the majority of the marital assets, and your spouse simply agrees without putting up a fight.
If your spouse is quick to take what you consider a “bad deal,” then it probably isn’t a bad deal. He or she most likely has undisclosed or hidden assets out there, and simply wants to wrap things up before you get wise and discover it. You would be smart to hit the pause button and do a little more research before you sign any agreement under these circumstances.
The bottom line is, that while IRS changes in recent years have made it more difficult for people to hide offshore accounts, it can and does still happen. A prudent spouse will take the necessary steps to ensure there are no assets being hidden overseas.