How Are International Assets Handled in a New York Divorce?

The New York metro area is home to a large international community — executives, entrepreneurs, professionals, and families with deep financial ties to other countries. When these marriages end in divorce, the question of how to treat overseas assets becomes one of the most technically demanding aspects of the case.

New York courts have broad authority over the parties before them, but actually reaching and dividing foreign assets requires strategy, coordination with international legal counsel, and sometimes creative problem-solving. Here is an overview of how these cases typically work.

New York's Jurisdiction Over Foreign Assets

New York courts can exercise jurisdiction over the parties to a divorce — not just the property. This is an important distinction. Even though a New York court cannot directly seize a house in Italy or a bank account in Switzerland, it can issue orders directing a party who is before the court to transfer, liquidate, or account for those assets as part of the equitable distribution of the marital estate.

Refusing to comply with such an order can result in contempt findings, adverse inferences at trial (where the court treats the refusal as evidence that the assets exist and the refusing party is hiding them), and other sanctions. New York courts take non-disclosure seriously.

Disclosure and Discovery of Foreign Assets

The starting point in any divorce with suspected international assets is a thorough financial disclosure process. New York requires both parties to submit sworn statements of net worth that list all assets, income, and liabilities. Foreign assets must be disclosed and valued.

When a party suspects the other spouse is concealing or undervaluing international holdings, discovery tools available include:

• Depositions of the opposing party and third-party witnesses
• Subpoenas for documents — including tax returns, FBAR filings, wire transfer records, and foreign investment statements
• Forensic accountants who specialize in tracing international assets
• Engagement of foreign legal counsel in the relevant jurisdiction
• Mutual Legal Assistance Treaty (MLAT) requests in appropriate circumstances

FBAR filings (Foreign Bank Account Reports) are a particularly useful discovery tool. U.S. persons are required to file an FBAR with FinCEN for any foreign financial account with a value exceeding $10,000 during the year. These filings can be subpoenaed and may reveal accounts that a spouse has not voluntarily disclosed.

Valuing Foreign Property

Once foreign assets are identified, they must be valued. Real property in other countries requires appraisals that comply with local standards, and the appraised value must be converted to U.S. dollars at an appropriate exchange rate. Business interests, investment accounts, and pension plans in foreign countries each present their own valuation challenges.

Retirement and pension accounts are particularly complex. Many countries have mandatory pension systems that are not analogous to American 401(k) plans. The extent to which contributions made during the marriage constitute marital property under New York law — and how those contributions can actually be accessed — requires careful analysis.

Distributing Foreign Property

There are several approaches courts and parties use to divide foreign assets:

Offset

Rather than actually dividing a foreign asset, one spouse receives the foreign asset and the other receives an equivalent value from domestic assets. This approach avoids the enforcement complications associated with directly dividing property located abroad.

Directed Sale

The court orders the party who controls the foreign asset to sell it and remit the marital share of the proceeds to the other spouse. Compliance can be enforced through contempt proceedings if the party refuses.

Parallel Proceedings

In some cases, it may be necessary to pursue proceedings in both New York and the foreign jurisdiction simultaneously. For example, real estate located in another country may need to be addressed through that country's legal system to be effectively transferred.

Foreign Divorce Decrees and Recognition

If one spouse obtains or threatens to obtain a divorce in another country — particularly one with more favorable laws regarding asset distribution — New York courts can issue orders prohibiting such attempts. New York has jurisdiction over parties who are domiciled here, and unilateral divorce filings in foreign countries are not automatically recognized in New York.

Conversely, if you have a foreign divorce decree and are seeking to have it recognized in New York, or if your spouse is seeking to prevent recognition of a foreign decree, that presents its own set of legal questions.

Tax Implications

The transfer of foreign assets in connection with divorce can trigger significant U.S. tax obligations, including capital gains taxes, FBAR and FATCA compliance requirements, and potential gift tax issues. A divorce attorney handling international assets should work in coordination with a tax professional who understands the international dimensions of the transaction.

The attorneys at Aiello & DiFalco LLP have experience handling high-asset divorce cases with international components. If your marriage involves foreign property or financial accounts, we encourage you to consult with us early in the process — before any assets are moved or actions are taken that could affect your rights.