The Joy of An Ex - Where Is The Money Hidden?

Copyright (c) 2011 Jackie Ramler

Sadly, many Statements of Financial Circumstances bear little relationship to the real picture. A self-employed spouse may run an expensive car, take many overseas trips and stay at 5 star hotels, but declare a loss on his tax return. So, you ask "fifty percent of what?" Forensic accounting can do much to cut through the fiction of many balance sheets. But, if the money happens to have been secreted offshore, what do you do? Or for starters, when there is a clear gap in your spouse's declared assets, what may lead you to suspect that money has been sent offshore?

Firstly, a word on offshore banking and tax havens. Contrary to what governments would wish us to believe, there is nothing illegal, immoral or in any way improper in keeping money offshore. And there is certainly nothing wrong in having an offshore trust. Immigrants to Canada are permitted to hold assets in an offshore trust and pay no tax on interest earned for the first 60 months of their residence in Canada. The Double Tax Treaty with Barbados provides for an effective 2.5% tax rate for Canadians wishing to use a Barbados corporation to carry on their business. Businesses people of many levels, up to that former Prime Minister Paul Martin, use the Barbados connection. It makes sound business sense.

Many tax havens are also in the business of promoting Asset Protection Trusts. In these arrangements, assets are held on your behalf in a trust that, depending on location and correct establishment, will provide a high degree of protection from one's creditors. The trust funds, technically, no longer belong to the person who settles the trust. He or she may not even be a direct beneficiary. As a result, there is nothing to declare in the Statement of Financial Circumstances. Similar considerations apply to the use of offshore corporations that have nominee shareholders and directors.

Technically, they are not owned by your spouse. Even with a simple offshore bank account, secrecy laws in the relevant jurisdiction may prevent you from obtaining information. And, of course, your spouse may not oblige by admitting having the account. The money is sitting there, just waiting for the day that the estranged spouse and new lover may take off to start a new life in sunnier climes.

Where is the money likely to be? The tax havens now call themselves Offshore Finance Centres. Some like The Cayman Islands, The Turks and Caicos Islands and The Cook lslands are located in pleasant, hot places. They have the added attraction of beach activities, to pass the time during which one is not busy in the bank or at the lawyers' office. Other jurisdictions such as Switzerland and Panama offer banking secrecy and efficient services for foreigners. A few have devised legislation to make it particularly difficult for creditors to get their hands on funds held in trust or bank accounts. The Cook Islands has very short limitation periods for bringing an action. They even have a double hurdle, in the form of obtaining the leave of the court to even bring an action.

What will make you even start to consider that money is hidden offshore? Well some people cannot keep their mouths shut. A topic of conversation for a limited duration may be: "I always wanted to go and visit Bermuda". Or computers left on, that display Google hits on phrase such as: "offshore banking"; "asset protection" and "tax haven". Sometimes it is just a hunch. A spouse who travels a great deal, takes sizeable amounts of cash with him or her and returns with none, may well have opened up a bank account overseas. It may not be in a tax haven, but in the USA or a European country. A frequent traveler may amass a sizeable deposit over time. ABM machines may be accessed overseas to provide top-up funding. Larger transactions will show up on mainland bank statements with destination.

The use of third party countries for international trading will enable transfer pricing to take place: for example, selling goods from Canada to a subsidiary in Mauritius and then the subsidiary selling on to India at a higher price, the balance being retained in Mauritius. Or, using a Cyprus company to affect the same in trade with Russia. Many professional and sports men and women who obtain contracts to work overseas arrange to be employed by, say, a Bahamian company which invoices his or her employer and pays a reduced amount to the spouse. The balance is kept in the Bahamas. The permutations are endless.

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