Divorce and Foreign Financial Accounts: Don't Overlook These Critical IRS Reporting Requirements

Divorce is stressful enough without unexpected IRS penalties.

If you or your spouse have foreign bank accounts, investment accounts, or other foreign financial assets, divorce is the perfect time to make sure you understand your U.S. reporting obligations.

One of the biggest misconceptions I see is this:

Filing an FBAR does NOT automatically satisfy Form 8938.

Depending on your financial situation, you may be required to file both.

Ignoring these filings can result in significant penalties at a time when you're already trying to protect your financial future.

Why Divorce Can Trigger Questions About Foreign Accounts

During a divorce, many people are reviewing their finances in detail for the first time.

You may discover:

• Joint foreign bank accounts

• Foreign investment or brokerage accounts

• Accounts opened years ago that your spouse managed

• Foreign retirement accounts

• Foreign accounts where you're listed as a joint owner or have signature authority

Even if you weren't the spouse handling the finances, you may still have reporting obligations.

What is an FBAR?

The Foreign Bank Account Report (FBAR) is filed electronically with FinCEN, not the IRS.

You generally must file an FBAR if:

• You're a U.S. citizen or resident, and

• The combined value of all your foreign financial accounts exceeded $10,000 at any point during the calendar year.

The key word is combined. Even several smaller accounts can trigger the filing requirement.

What is Form 8938?

Form 8938 is filed with your federal income tax return and reports specified foreign financial assets under FATCA.

Unlike the FBAR, filing requirements depend on your filing status and where you live.

Many divorcing couples file jointly one year and separately the next, which can change whether Form 8938 is required.

FBAR vs. Form 8938

FBAR	Form 8938
Filed with FinCEN	Filed with the IRS
Separate electronic filing	Attached to your tax return
$10,000 aggregate account threshold	Higher thresholds based on filing status and residency
Reports foreign financial accounts	Reports specified foreign financial assets

Potential Penalties

FBAR

• Non-willful violations may result in penalties of up to $10,000 per violation (subject to inflation adjustments).

• Willful violations can result in penalties equal to the greater of 50% of the account balance or the statutory maximum, plus possible criminal penalties.

Form 8938

Failure to file can result in:

• An initial $10,000 penalty

• Additional penalties of up to $50,000 if the failure continues after IRS notification

• Potential 40% accuracy-related penalties on underpaid tax related to undisclosed foreign assets

A Common Divorce Mistake

Many people assume that because their spouse handled the finances, they don't need to worry about these filings.

Unfortunately, that's not always true.

If your name appears on foreign accounts or you have an ownership interest in foreign financial assets, it's important to determine whether you have an independent filing obligation.

This is especially important during the transition from filing a joint return to filing separately after divorce.

Protect Your Financial Future

Divorce is about more than dividing assets. It's about understanding your financial responsibilities moving forward.

Foreign account reporting is often overlooked, but missing these filings can create expensive problems long after your divorce is finalized.

If you're navigating divorce and have foreign financial accounts or investments, work with a professional who understands both the tax rules and the financial complexities of divorce. Addressing these issues now can help you move into your next chapter with greater confidence and fewer surprises.

Your divorce settlement isn't the finish line. It's the beginning of your financial independence. Make sure hidden tax reporting requirements don't become costly surprises as you build your next chapter.