According to the UK’s society magazine, Tatler, cryptocurrencies have been dubbed the new ‘Cayman Islands bank account’ for high-net worth (HNW) individuals attempting to hide their assets in divorce proceedings.
The lack of domestic and internationally cohesive regulations around cryptocurrencies, such as Bitcoin, and the fact they are held in ‘digital wallets’ which can prove difficult to trace back to a specific person, means that crypto can provide a cunning vehicle for concealing wealth.
Family law solicitors specialising in international and HNW financial proceedings on divorce have been swift to get to grips with the legal issues surrounding cryptoassets and divorce financial settlements.
What are cryptoassets and cryptocurrencies?
Cryptoassets are digital representations of value that you can transfer, store, or trade electronically. As well as currencies, cryptoassets include non-fungible tokens (NFTs).
Cryptocurrencies are purely digital and use a peer-to-peer system and blockchain to undertake and record transactions. Cryptographic keys are stored in ‘wallets’ which are managed by a centralised crypto exchange (CEX).
There are several different types of cryptocurrencies, however, the most widely used and well known are Bitcoin and Ethereum.
Cryptocurrencies sit outside central banks, regulatory authorities, and governments. At present, they are unregulated, although there are moves to rectify this in many parts of the world, including the UK, Europe, and the USA.
Can cryptoassets and/or currencies form part of a divorce financial settlement?
Yes, and therefore any cryptoassets held by a party to a financial settlement proceedings on divorce must include them when making a full and frank financial disclosure. Although cryptocurrencies are notoriously volatile, the courts do have methods and expertise at their disposal to undertake valuations and assess their values.
What can I do if I believe my spouse is hiding cryptoassets?
Cryptocurrency can be difficult to identify and trace because there is no centralised ownership register for cryptocurrency assets. A specialist forensic expert may therefore need to be instructed to establish where cryptoassets are being held and to determine their approximate value.
Although it is widely believed that cryptocurrencies are anonymous, they are in fact more transparent than most people realise. Currencies such as Bitcoin do not have a centralised authority to provide identifying information, however, most cryptocurrency blockchains are public, meaning anyone with the required expertise can track an entire transaction history.
If you believe your spouse is hiding cryptoassets, it is possible to apply for a freezing order to prevent them from dealing with or disposing assets, including cryptocurrency, for a period of time. Whilst the freezing order is in place, a solicitor can instruct an expert such as a forensic accountant to trace and value your spouse’s cryptoassets. Freezing orders can only be applied for in limited circumstances and there are strict costs warnings which need to be considered ahead of issuing such proceedings.
Sometimes, cryptoassets cannot be traced. In such circumstances it may be possible to persuade the court that your spouse does possess cryptocurrency by providing evidence such as crypto wallet transactions or bank statements showing dealings in cryptocurrencies.
If the suspected cryptoassets cannot be traced but there is substantial evidence to show that they exist, the court has the power and ability to attach a notional value to the cryptocurrency and account for it as a matrimonial resource to be divided between you and your spouse. After considering all the factors contained within section 25 of the Matrimonial Causes Act 1973, the court will decide how the property and assets of the marriage are to be divided, and this can include untraceable cryptoassets.
Across the civil, criminal, and family courts, the judiciary has moved quickly to ensure that those adversely affected by the hiding and/or fraudulent dealings in cryptoassets receive access to justice. This is a fast-paced area of law, in which technology can rapidly outstrip legal remedy. In financial settlement cases on divorce, especially those involving significant assets and/or an international element such as obtaining a divorce in a foreign jurisdiction, securing advice from an experienced and specialist family law solicitor can make a significant difference to the outcome of your financial settlement.
Edwards Family Law is a niche London-based firm specialising in high-net-worth divorce and international family law. To find out more about divorce and financial settlements, please phone +44 (0)20 3983 1818 or email email@example.com. All enquiries are treated in the strictest confidence.