Many intelligent comments are attributed to that great American Benjamin Franklin, including:
“Keep your eyes wide open before marriage, and half shut afterwards.”
Here is what it means to “keep your eyes wide open”, if you are a non-U.S. citizen considering marriage to a U.S. citizen. There’s “The Good”, “The Bad” and “The Ugly”.
“The Good”
Well, this is good for the U.S. citizen. Many Americans abroad are renouncing U.S. citizenship. It’s important that they are not “covered expatriates”. The U.S. spouse can make gifts to the “non-U.S. spouse” in order to reduce his or her net worth. Good news for the “non-U.S. spouse”. Bad news for the “U.S. person” who exchanges the “financial risk of being a U.S. person” for “marriage risk”.
“The Bad” – Let me count the ways
1. A U.S. citizen married to a U.S. citizen spouse is able to “will” his/her complete estate to the U.S. spouse. (The theory being that the U.S. will get its pound of flesh anyway.)
A U.S. person cannot (subject to a complicated and expensive trust arrangement) “will” a non-U.S. spouse the complete estate. (The theory being that the non-U.S. person will not be subject to U.S. tax when they die.)
2. If a U.S. person has signing authority over any bank account with you, that account must be reported to the U.S. government on an FBAR (“Foreign Bank Account Report”).
There is a saying that: “If you marry someone, you marry their family”.
If you marry a U.S. person: “You will have a lifetime of involvement with the IRS and the emotional and financial cost that it entails”.
3. U.S. persons living outside the United States are disabled from normal financial and retirement planning. Do you want your marriage to a U.S. person to make it more difficult to plan for your retirement?
Many countries (including Canada) use the principle of “tax deferral” to encourage retirement planning. The U.S. tax system punishes “tax deferral”.
4. Because of the FBAR, FATCA, and double taxation, U.S. persons living abroad are much less employable than other nationals. You will have to live with this during your marriage.
Why would any employer want the hassle of dealing with a U.S. citizen when a non-U.S. citizen will do?
5. Because of FBAR and FATCA, non-U.S. entrepreneurs are reluctant to include U.S. persons in their partnerships and business ventures. Again, your marriage to a U.S. person will subject you to a diminished range of opportunity.
Non-U.S. persons do NOT want their financial information shared with the IRS. The easiest way to ensure this is to exclude U.S. citizens from their business arrangements.
6. It is possible that the children of the marriage would also be U.S. citizens. Do you want your children to be afflicted with the disabilities of U.S. citizenship?
The old “Guess Who” song – “American Woman – Stay Away From Me” – may have had it right!
No doubt, some of you will be unhappy with the inclusion of this information. But, just telling it like it is!
7. Never allow a U.S. spouse to be the executor of an estate!
Just don’t do it!
8. What about children of the marriage who are NOT U.S. citizens?
U.S. tax law will NOT allow you to claim a child who is not a U.S. citizen as a dependent. Yes, you read right!
9. The U.S. citizen spouse will almost certainly file U.S. taxes under the category of “married filing separately”. Married filing separately will generally result in additional taxes and reporting requirements.
Under U.S. law the U.S. citizen spouse will pay a financial price for failing to deliver the non-U.S. citizen spouse to the IRS.
“The Ugly”
Divorce is always ugly. But, it’s particularly difficult for U.S. person trying attempting to transfer property to non-U.S. spouse (it can trigger bad taxes).
Conclusion:
The U.S. tax code treats a marriage between a U.S. citizen (AKA U.S. property) and a non-U.S. citizen (not U.S. property) as a form of potential tax evasion.