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Tracking down assets hidden overseas: tax documents can help, but work with experienced attorney

In recent posts, we’ve highlighted the importance of working with an experienced attorney to make full use of the discovery process in divorce to ensure that a spouse doesn’t get away with hiding assets. Again, this is a particularly important issue for couples with significant wealth, and especially for the financially weaker party, who stands to lose more from a spouse’s asset-hiding.

One of the asset-hiding threats we didn’t discuss in previous posts is not necessarily that common, but it is still worth mentioning: hiding assets offshore. Readers may remember that last year there was a major leak of documents from a Panamanian law firm suggesting a conspiracy to help powerful individuals, including many political leaders, set up offshore companies and accounts in order to hide money. 

While the attorneys who founded the firm connected to the scandal maintain their innocence, the so-called Panama Papers scandal did raise the issue in the public consciousness. For wealthy couples going through divorce, the possibility of hiding assets in offshore accounts, property and companies should always be judiciously considered. Unfortunately, it can be difficult to track down offshore assets due to strict secrecy laws, though these vary from one jurisdiction to another.

Several tools are available through the IRS that can help spouses track down offshore assets. The IRS Offshore Voluntary Disclosure Program allows taxpayers to avoid criminal liability and resolve any civil tax liabilities, though spouses intent on hiding assets can’t be expected to participate in the program. Under the Foreign Account Tax Compliance Act, many overseas financial institutions are required to report on foreign assets, which can be of help, along with Foreign Bank Accounting Reporting and Foreign Account Tax Compliance reporting requirements.

These and other tax documents can provide information about offshore assets, but it is critical to work with an experienced attorney who understands the requirements, what to look for and how to use the information to track down assets so that they are fully accounted for in property division.

Source: American Bar Association, 2014 Spring CLE Conference, “How to Find Your Spouse’s Secret Offshore Bank Account: Using U.S. Tax Reporting Requirements as a Discovery Tool for Locating Foreign Assets, G. Daniel Jones & Matthew Lee, May 10, 2014. 

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