The growth of crypto-currencies (‘cryptocurrencies’ if you prefer!) over the last few years has led to interesting challenges in divorce and for divorce lawyers. The whole area of crypto-currencies is an emerging ‘asset class’ and is all a bit of a jungle in terms of lack of regulation, involved parties of dubious intent and the well documented volatility issues.
Why do people invest in crypto-currencies?
Whilst most of us came to terms with lockdown, some quarters of society were making significant savings as a result of working from home and were looking for opportunities to do something useful with the money stacking up in their bank accounts they may otherwise be going on train fares and lunches. With the rise in the value of crypto-currencies and the continued low interest environment surrounding more conventional investments, for some the temptation to make a fast buck seems a ‘no brainer’.
The misuse of crypto-currency in divorce situations
Hidden funds and assets in divorce is nothing new. For some individuals involved in a breakdown of marriage, see crypto-currencies as a perfect new way to syphon off funds or put assets beyond the reach of their spouses. The anonymous nature of the currency makes them hard to detect, as they are held in digital wallets and are not ascribed to individuals. This makes them difficult to trace if your spouse is less than candid about their financial affairs.
How to find hidden crypto-currency funds
So how would you go about finding out whether your spouse has a hidden pot of crypto-currency? Firstly, an analysis of his or her bank accounts may reveal entries involving crypto exchanges. Finding the point of entry or exit of crypto-currencies offers the best chance in detecting their existence. All bitcoin transactions are recorded in a shared public ledger, a blockchain. Locating the bitcoin address or digital wallet may then reveal a link to your spouse.
Another option is through analysing tax returns. Gains derived from crypto-currency have to be declared for tax purposes. Whilst a tax return may reveal transactions, if the purpose of the crypto-currency accounts is to hide wealth, then it is unlikely that your spouse will declare it to HMRC.
There are companies that claim to be able to track down crypto currencies, but such experts will come at a price. If you want the Court to direct the appointment of such an expert, you will need to show the suspected existence of crypto-currency, and that will need evidence. In gathering the evidence, a cautionary approach is recommended. You cannot ‘break into’ computers or phones to look for information as there are strict rules about obtaining such evidence.
What the Courts regards as acceptable evidence
Even if you cannot obtain hard proof as to the amounts of crypto-currency, all is not lost. Any evidence suggesting or pointing to ownership can be sufficient for a Court to infer its existence and for it to draw its own conclusions and make Orders relating to other assets. Courts have wide powers and sanctions when it comes to those who are trying to hide assets and can overturn Orders as a later date where a subsequent failure to disclose assets comes to light.
Family law practitioners and the Courts are already bringing themselves up to speed about how crypto-currencies work and how they can be misused by some individuals. With crypto-currencies no longer being the preserve of the very rich, they will increasingly become a feature in family proceedings, and not necessarily for all the right reasons.
If you are looking for excellent legal advice in any aspect of family law, please contact rhw’s well regarded team for a chat.