How Will Meghan Markle's Finances Change Now That She Has Married Harry?

The marriage of Meghan Markle and Prince Harry was anything but ordinary. Even among royal marriages it’s unique because Meghan is American – and, like many Americans, she is biracial. But while her race isn’t a issue, her nationality is – thanks to the U.S. tax code.

American citizens like Markle, who was born in Los Angeles, must report their worldwide income to the IRS even while living abroad. (For more, see How to Pay Taxes If You're Overseas.) She will have to file U.S. tax returns and Foreign Bank Accounting Report (FBAR) forms, assuming she becomes the signatory on or holder of accounts worth $10,000 or more. The penalties for not filing FBARs can be harsh and include both fines and possible jail time.

Although Markle has left her acting role as an attorney on the television show “Suits,” she will continue to earn residuals from reruns and DVD sales. But that income is insignificant compared to what she could receive as a member of the royal family. And that’s what will make the couple’s tax situation, and the family’s desire for financial privacy, so tricky to navigate.

Markle could have to report to the IRS as income the value of seemingly inconsequential things, such as being lent expensive jewelry, being given a vacation, or living in a Kensington Palace home with her husband. Merely failing to report something she’s required to report, even if it’s not taxable, could result in major tax penalties.

Prince Harry shares with his brother, Prince William, and sister-in-law, Kate Middleton, the Duke and Duchess of Cambridge, an annual allowance that came to £3.5 million ($4.7 million) in 2017. We don’t know if Markle will receive her own allowance or if she will be dependent on Harry’s.

In addition, Prince Harry earns money from a $1 billion portfolio of investment properties called the Duchy of Cornwall that funds his family’s public, charitable and private activities. Together, Prince Harry and the Duke and Duchess of Cambridge received several million from the portfolio in 2017. Prince Harry could also be receiving money from other royal trusts, but such information is not public.

The Foreign Account Tax Compliance Act (FATCA) will also affect the married couple. As long as Markle remains a U.S. citizen, she will have to file form 8938, Statement of Foreign Financial Assets, with the IRS each year. The reason: She will have an interest in foreign financial assets worth more than the threshold, which is either $200,000 (if she elects the married filing separately status) or $400,000 (if the couple chooses to file jointly). Markle’s share of the royal family’s assets won’t come in below either threshold.

Still, for other reasons, it will matter which filing status the couple chooses. Writing for the “European Financial Review,” San Francisco-based tax lawyer Robert Wood explains that while almost all married couples file joint tax returns with the IRS, Markle and her prince should choose the married filing separately status, which limits each spouse’s liability for what is and isn’t reported on the return.

While choosing this filing status makes couples ineligible for certain tax credits and limits certain deductions, such concerns are unlikely to be meaningful for such a wealthy couple. More important, filing separately would mean Markle would not have to report Prince Harry’s assets or income. The royal family would probably prefer that its finances not become the knowledge of the Internal Revenue Service. The temptation for someone to leak that private information would be great.

The only way for Markle and the British royal family to extricate themselves from the tax nightmare the IRS has created for U.S. citizens living abroad is for Markle to renounce her U.S. citizenship, something only a few thousand Americans do each year. But even if Markle renounces her U.S. citizenship, she will still have to report any U.S. source income from her acting residuals to the IRS. And should Markle renounce her U.S. citizenship, her high net worth could require her to pay an expatriation tax.

What kind of money is the Duchess of Sussex bringing into the marriage? Celebrity Net Worth reports that 36-year-old Markle’s net worth is around $5 million. She earned about $450,000 annually as an actress in “Suits,” which she joined in 2011 (the show is entering its eighth season). She has also earned income from her women’s fashion line at Montreal-based clothing store Reitman’s, plus six-figure sums from her film appearances.

The IRS requires expatriating Americans to pay an exit tax if their net worth is $2 million or more on the date of expatriation, which Markle’s certainly will be. And she would have to file form 8854 listing her net worth and property owned on the date of expatriation and certifying that she has complied with all of her U.S. tax obligations for the past five years. The form includes a detailed balance sheet and income statement, too.

But even if she wants to or her in-laws pressure her into it, Markle won’t be able to renounce her U.S. citizenship right away. She will eventually become a British citizen, but she can’t even apply for citizenship until she’s been married and living in the U.K. with Prince Harry for three years. So the couple will have no choice but to deal with the IRS for the next several years.

If the couple resided in the United States, Prince Harry would not have to file British taxes: Britain doesn’t have a worldwide tax system. But that wouldn’t solve the problem of the IRS learning certain details of the royal family’s finances.

Some details are already public. The Duchy of Cornwall publishes annual financial statements of its income, expenditures and staff. And we know that Prince Harry brings an estimated net worth of $40 million into the marriage, according to the U.K.’s “Daily Mail.” About one-third of his fortune comes from the $13.3 million he inherited from his late mother, Princess Diana.

The tax implications of the royal couple’s marriage highlight the complexities of the U.S. tax system. It’s convoluted enough if you’re a U.S. resident, and it only gets worse if you’re a U.S. citizen residing abroad. As the couple’s totally unromantic tax story unfolds over the next few years, it will be interesting to see if the extra attention their situation brings to the difficulties of the U.S. tax code will spark any changes.

You may also be interested in A Royal Budget: How Kate's Financial Life Is About to Change.