Many couples going through marital separations (divorce) have interests in foreign assets. Often these are dual nationals who have interests in family businesses in their country of origin, but regardless of the source of the acquired assets or immigration history of the parties, there are several important issues to consider in fashioning marital settlement agreements using foreign assets.
First, are the assets subject to a sanctions order, like the Iranian Transaction Regulations, (ITR) and related Executive Orders. If so, then does the property transfer require a license from the Office of Foreign Asset Control (OFAC) ? Second, is the asset(s) of a class that would require disclosure as a Specified Foreign Financial Asset on IRS form 8938? Third, If the asset(s) consist of holdings in a foreign corporation, partnership or trust, were the required information returns files, like Form 5471, for a controlled foreign corporation? Fourth, if the asset(s) consist of foreign bank accounts was a Report of Foreign Bank Account (FBAR) timely filed? Fifth, was the income from the foreign assets correctly reported on state and federal income tax returns. Finally, if the asset(s) were acquired by gift or inheritance was a Report of Foreign Gift or Bequest required and filed? These are the basic compliance questions, but other issues arise as well.
If a license from OFAC was required and not obtained and funds were transferred to a U.S. person the ITR may have been violated, along with the money laundering laws. If an informal value transfer system (the “Hawala”) was used, a host of other issues arise.
While it may be proper to the property division of a marital estate to transfer interests in foreign assets among the parties, the act of transferring the assets and disclosure history must be reviewed in order to determine whether there is a need for a voluntary disclosure or other curative steps.