Scenes from the #FBAR Marriage: what can happen if #Americansabroad share a bank account with a non-US person

Part 1 – The problem of a U.S. person sharing financial accounts with a non-U.S. person – Probably better to NOT do it!

The above tweet references the following comment at the Isaac Brock Society:

Very timely post. After a weekend when my family was annoyed at me doing my taxes, I thought I was done, but unfortunately not. Try as I might, I could not convince my husband to remove his name from one of our joint checking accounts. Unfortunately, he didn’t tell his family. Various members deposited sums into the account for different reasons near the end of the British tax year, including the repayment of a large business loan that my entirely British husband had made out of his savings. So now instead of being done with my taxes, I have to fill in the dreaded 8938 because of money that isn’t even mine. For a while I was angry at my husband, but it is really the U.S. government with all of its fiddly rules that is at fault.

 

Part 2 – “Married filing separately” – The default tax filing status for a U.S. citizen who is living outside the U.S. married to a “non-U.S. spouse”

In most cases the non-U.S. spouse would NOT want to be a “U.S. taxpayer”. Once understood, you will see that “married filing separately” is a hidden tax on Americans abroad. This means that the U.S. spouse will use the “married filing separately” filing status. The “married filing separately” is problematic for reasons that include:

– you will enter higher tax brackets at lower levels of income

– the requirements to file certain information returns (including From 8938) will be triggered at lower levels of income

– both the Alternative Minimum Tax and the Obamacare surtax will be triggered at lower levels of income.

Part 3 – Never, say never. There are always exceptions. In some cases, it may be advantageous to for the “non-U.S. spouse” to choose to enter the U.S. tax system and for the spouses to file “Married Filing Jointly”.

The above tweet references an interesting post by Phil Hodgen. Read it once. Read it twice. It presents some interesting tax planning opportunities. The context and title of the post is: “Why become a U.S. taxpayer after you renounce?

An excerpt includes:

Why would you want to do this?

Simply put, you would do this in order to re-balance assets between the U.S. citizen spouse and the spouse who renounced citizenship. The objective would be to get all of the highly appreciated assets into the name of the nonresident spouse, and get cash into the hands of the U.S. citizen spouse.

Make the election. Do the rebalancing of assets. Then revoke the election. Have the expatriate spouse sell the assets without capital gain.

In my example, the wife ends up with $500,000 cash, and the husband ends up with the real estate. If he terminates the election to be a resident alien for income tax purposes, he can then sell the real estate tax-free.

Conclusion:

The moral of the story is that a marriage between a U.S. citizens and a non-U.S. citizen come with both problems and opportunities.