Property division is often the most contentious and complex divorce issue for affluent couples. However, for many reasons, property division becomes even more complicated in an international divorce. Since the division of your marital property will profoundly impact your life after divorce, you must exercise extreme caution. Since you will most likely have to live with the consequences of any oversights or omissions, you must pay meticulous attention to every detail. Retaining a knowledgeable attorney with experience in international divorce cases can help you protect your right to a fair share of your marital estate. In this article, we’ll provide a brief summary of the major property hurdles you might have to overcome.
Top 6 Property Division Issues in an International Divorce
Numerous factors can complicate an international divorce. When it comes to your property, you must contend with:
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Choice of venue — Where to get divorced is an important consideration. Your options are limited, because a court must have a legal right to exercise jurisdiction over your marriage. In New York, for example, you must fulfill the residency requirement. This usually means that at least one spouse has been a state resident for at least two years. However, if you got married in New York, lived as a couple in the state, or are citing grounds for divorce that happened in the state, the requirement is only one year. If you get divorced in New York, your property is subject to equitable distribution, meaning that each spouse receives a fair, but not necessarily equal, share of the marital estate. This differs from so-called community property states, like California, where spouses are presumed to receive equal 50-50 shares of marital property.
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Laws of the land where the property resides — Although a New York court can exercise jurisdiction over your marriage, it cannot apply New York law to disputes over property in foreign countries. The court must apply local law to those assets or risk issuing an order that conflicts with local law and which the foreign state will not enforce.
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Valuations of overseas assets — Before you even get to the point of dividing property, you must identify and locate those assets. Foreign privacy laws can make this process difficult, so if a foreign spouse is not transparent about overseas assets, you might have to do a fair amount of detective work before even knowing what kind of property you’re dealing with. Once you’ve tracked down the property, you must reliably assess its value. How to do this depends on the type of property in question, which might be:
- Trusts
- Retirement accounts
- Real estate
- Luxury vehicles
- Fine art
- Business assets and investment properties
- Bank accounts
Physical assets must be appraised, requiring expert evaluation and accounting for currency exchange rates.
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Enforcement issues — As already noted, it can be difficult for a court in one country to issue a property division order that a court in another country will enforce. For example, a New York court might try to order a chateau in France to be sold and the proceeds divided. But you may not be able to find a French judge who will enforce that order. Alternatively, the New York court could award the chateau to one spouse and offset its value with other assets from the marital estate for the other spouse. Unfortunately, this arrangement only works if there are sufficient domestic assets to balance out the foreign property award.
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Tax implications — The transfer of assets during divorce can have significant tax consequences, which the parties must consider in their settlement negotiations. When assets are also transferred across borders, tax liabilities can increase substantially. The situation becomes even worse when the spouses have not properly reported and disclosed the foreign accounts and income. The IRS will impose extremely high penalties for violations of the Foreign Account Tax Compliance Act. Both spouses are liable for penalties, including jail time, for any year in which they filed a joint return. Depending on the circumstances, the couple might consider entering the Voluntary Compliance Program to disclose unreported offshore income to the IRS.
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Validity of a marital contract — If you have a prenuptial or postnuptial agreement that you want the court to honor, you should file for divorce in a jurisdiction that enforces such contracts. Courts in New York will enforce prenups that conform with the controlling statute, Domestic Relations Law § 236, and subsequent case law. In New York, a marital contract must be voluntary, free from coercion, duress, or fraudulent inducement, negotiated after full disclosure by both parties, and executed properly. A New York court can invalidate a prenup that does not meet state standards. However, even if a contract meets all of these requirements, the terms must still be fair. A court will invalidate a contract if enforcement of its terms would be “unconscionable.”
Most countries allow some version of a marital agreement, but some holdouts still believe these contracts make for bad public policy. The Bahamas, England, Wales, Ireland, Singapore, and Italy are a few of the countries that still look askance at prenups. You will likely face more intense scrutiny, especially if the contract favors one party over another.
In most cases, a divorce court will only consider amending its property division order if an aggrieved party presents evidence of fraud during negotiations or at trial. This means you get one chance to pursue a fair allocation of marital property. If you don’t speak now, you must forever hold your peace. With that in mind, you must retain experienced international divorce counsel with a record of success in complex property division cases. Bikel Rosenthal and Schanfield is a Tier One divorce law firm with ample experience in high net-worth international divorces. Call us today to discuss your case.