Wednesday, 23 Jun 2021

‘We’re divorcing. I think my husband has hidden bitcoin’

Question: Over the past year or so I have overheard my husband telling his friends about how well his bitcoin investments have done. We are now getting divorced and I realise I have no idea how much his cryptocurrency holdings are worth or even how to find that out.

When it comes to disclosing our assets and negotiating a financial settlement I have no evidence at all that it actually exists. Is there anything I can do other than hope that he is honest about it? What will happen if he claims he has nothing in bitcoin?

Harriet Errington, partner at law firm Boodle Hatfield, says this is an increasingly common dilemma of the digital age.

The anonymous nature of cryptocurrencies makes them notoriously difficult to deal with in the context of divorce proceedings, despite the wide-ranging powers of the family courts.

Cryptocurrencies are held in digital wallets which create “addresses” for transactions, none of which are logged to individuals. If your spouse refuses to declare his cryptocurrency holdings, it is very difficult to ascertain these holdings as there is no central authority through which one can put names to assets.

The key is to identify the point of entry into or exit out of cryptocurrencies. The blockchain, a decentralised shared public ledger, records all bitcoin transactions, including the addresses it came from and went to. If you can find a transaction that includes a bitcoin address, or the digital wallet that can be linked to your spouse, then it may be possible to trace his transactions.

Analysing your spouse’s bank accounts is the best starting point. Bitcoin is typically purchased using fiat currency, so you should look for transactions with crypto-exchanges and trading apps or payment companies. Increasingly, non-financial companies accept bitcoin as payment and such physical asset purchases link the cryptocurrency to a name and an address.

Analysis of your spouse’s tax returns may provide evidence of cashing crypto holdings into “real” money as sales of bitcoin should be declared as a capital gain or loss.

A word of caution, however. You may not access your spouse’s computer or phone without authorisation. Doing so could get you into hot water with the family courts and potentially have criminal consequences.

Even if you cannot find documentary evidence that your spouse owns cryptocurrency holdings, if you can satisfy the court on the evidence available that he does — such as historic text messages referring to bitcoin — the court can draw inferences or make orders that other assets should be transferred to you in their stead.

The key is to make the non-disclosing party aware that it is not worth his while to hide cryptocurrency. Non-disclosure of assets can lead to delays and increased court costs.

Courts also have the power to re-open divorce settlements years afterwards if non-disclosure can be proven; therefore if you find out five years down the line that your ex has made a big purchase from unknown funds, it may be possible to re-open a previous divorce settlement.

As cryptocurrencies become increasingly mainstream and these issues become more common, the harder it will be for them to remain anonymous. The wide-ranging powers of the divorce courts, and the canny lawyers who work in them, are now proving more than a match for would-be wealth hoarders.

– Financial Times

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