In 2021 the value of cryptocurrecy reportedly reached $2 trillion. In the same year CNBC reported that 20 million Americans owned some kind of cryptocurrency such as Bitcoin, and many it seems are tempted to use this form of asset to hide money during divorce.
It’s not too much of a stretch to imagine that this level of digital currency ownership is being replicated across the globe, including in the UK.
This new class of asset has implications for the economy as a whole and for the investment markets. More particularly it’s something that divorcing spouses must take into account when agreeing a financial settlement. Is one spouse hiding cryptocurrency assets so that they fall outside any financial settlement? Has one party begun to invest in digital assets as a way of reducing the financial pot available for division? And if there are hidden digital assets how do divorce lawyers like Brookman go about tracking them down?
We’ll consider these issues below.
What Is Cryptocurrency?
Cryptocurrency is money that exists digitally or virtually. Bitcoin – first released in 2009 – is probably the best-known but there are now over 4,000 types of cryptocurrency.
Usually, cryptocurrency digital files are created using what’s known as cryptography – a secure communication technique. Cryptocurrency transactions are kept safe by the use of digital signatures, allowing others to check the veracity of the transactions. One of the main attributes of cryptocurrency is that it falls outside the control of central governments. Instead the currency is controlled through a list of transactions (a ledger) that is shared by everyone. This is known as a ‘blockchain’.
Cryptocurrency And Divorce: Form E
In England and Wales couples wishing the court to determine their financial settlement must complete Form E. Completion of the form involves a comprehensive itemisation of each side’s assets. Even where the financial settlement is being agreed privately, Form E is a useful tool to help the parties understand the extent of financial disclosure needed to reach a fair and binding financial agreement. It is well established that assets like cryptocurrency must be disclosed on Form E in the same way as other assets like property, artwork and shares.
Non- Disclosure Of Cryptocurrency During Divorce Proceedings
In 2017 YouGov published results of a survey which suggested a third of individuals would hide assets during divorce (i.e. fail to disclose them in Form E) if they thought there wouldn’t be any repercussions. As we’ve said before failing to disclose assets is never a good idea. Firstly a settlement reached without full disclosure might be reopened years later and secondly if a judge is given the impression that there has not been full financial transparency he or she has a wide discretion to make any financial order they see fit in the circumstances.
Family lawyers are well used to unearthing hidden assets like traditional bank accounts and property. But the virtual nature of cryptocurrency presents those wishing to prove its existence with unique challenges. Tracking down cryptocurrency ‘wallets’ can be hugely expensive. A cursory examination of tax returns and bank statements may sometimes immediately reveal cryptocurrency ownership by one spouse. But it will often be necessary to engage forensic accountants and other specialist investigators in the search for crypto assets. A spouse who suspects cryptocurrency is being hidden therefore has a calculation to make: Is the potential increase in a financial settlement sufficient to justify the risk and expense of trying to locate the cryptocurrency in the first place?
This calculation by a spouse seeking to unearth cryptocurrency is complicated by the intrinsically volatile nature of cryptocurrency. Rapid and dramatic fluctuations in value mean it can be difficult to ascribe a value to the crypto asset for the purposes of including it in any financial settlement calculation.
At Brookman we have extensive experience of all aspects of financial settlements during divorce. This includes managing contentious cases where one spouse may attempt to hide certain classes of assets like cryptocurrency. To discuss how we can assist you please call us on 44 (0) 20 7430 8470 or contact us online. We provide a free, initial consultation.