A law firm in London has recently revealed it has dealt with three divorce cases where parties are demanding, for the first time, the disclosure of cryptocurrencies such as Bitcoin, Litecoin, Ripple, and Ethereum. A fourth case is said to be imminent and, as cryptocurrencies become more mainstream, they are likely to play a major part in financial settlements in the near future, according to London’s best family solicitors.
When negotiating a financial settlement, full and frank disclosure is one of the cornerstone principles of achieving a fair result in a non-confrontational manner. Most spouses know they have to disclose property, savings, and other tangible assets. And with the increasing sophistication of forensic accountancy, this type of wealth is becoming harder to hide. But what about cryptocurrency? Is it easier to hide? And what value can it add to a financial settlement in a divorce case?
What is cryptocurrency?
The first cryptocurrency was Bitcoin, which is still the most well-known. Satoshi Nakamoto (whose true identity remains unknown) invented it unwittingly when he created a peer-to-peer electronic cash system in late 2008. He never intended for Bitcoin to be a currency. Mr Nakamoto’s genius was that he invented a decentralised digital cash system, something that had been attempted many times in the early nineties but had never succeeded.
According to an excellent article written by Ameer Rosic on blockgeeks.com, “If you take away all the noise around cryptocurrencies and reduce it to a simple definition, you find it to be just limited entries in a database no one can change without fulfilling specific conditions”.
Remember, there is no centralised system with cryptocurrencies, instead, it consists of a network of peers. Each peer records the history of all the transactions, and therefore, the balance of every account. No person or government controls cryptocurrencies. Bitcoin is not printed, instead, it is ‘mined’ by individuals and organisations who use software that solves complex mathematical equations.
Clever readers will immediately see that such a system provides an excellent opportunity for unscrupulous spouses to hide funds.
Tracing cryptocurrency for the purposes of a financial settlement
Tracing cryptocurrency is enormously time-consuming and expensive as it is not tied to the identity of the user. If a currency such as Bitcoin is traded via an online investment platform and bought with funds originating from a bank account, the original value of the transaction can be worked out. However, if cryptocurrency is purchased directly and traded offline, tracing it becomes almost (but not entirely) impossible. Therefore, if a spouse chooses not to disclose cryptocurrencies, they can remain hidden from the financial settlement, requiring the expertise of the best family lawyers and forensic accountants to trace it.
Distributing Bitcoin in a divorce financial settlement
Bitcoin is a notoriously volatile currency. In December 2017, Bitcoin fell more than 10% to a one-week low of $15,800 at cryptocurrency exchange Bitstamp BTC=BTSP, losing almost one-fifth of its value from a peak hit just three days before. It should be pointed out that Bitcoin is the most stable of all the cryptocurrencies.
What should I do if I believe my spouse has not made a full disclosure regarding their assets?
When you apply for a divorce in England and Wales you have a legal duty to provide full financial disclosure to your spouse. This includes details of:
- any property you own (both in the UK and overseas)
- valuations of stocks, shares or other financial interests in businesses
- your pension/s
- bank statements for any accounts you are named on
- business accounts if you are self-employed
- your wage slips and P60s
The valuation of any cryptocurrency can now be added to this list.
Failure to provide full disclosure, or an attempt to hide assets can result in the non-disclosing party being found in contempt of court.
If you suspect assets are not being declared and/or deliberately hidden to prevent them from becoming part of the financial settlement, you can apply for a Freezing Order. A Freezing Order is issued by the court and prevents a party from dealing with and/or disposing of assets which are subject to a matrimonial claim. A Freezing Order is considered the ‘nuclear weapon’ of divorce law as they affect third parties such as business partners from dealing with assets included in the order. Therefore, they are not handed down lightly and a high standard of proof must be met to have an order granted successfully. A family law solicitor in London will be able to provide you with the best advice on how to have a Freezing Order granted.
Cryptocurrency is likely to become more relevant to financial settlements over the next few years. As we move further towards a cashless society, it will become easier to hide monies and assets through digital means.
At OTS Solicitors, we are up to date with these developments and have the knowledge and connections, via forensic accountancy services, to ensure all hidden assets, including cryptocurrencies, can be traced quickly and accurately.
OTS Solicitors is a respected immigration and family law firm in London and is highly recommended by the Legal 500. By making an appointment with one of our family solicitors, you can be assured of receiving some of the best legal advice available in the UK today. Please contact us on 0203 959 9123.
Posted on: Thursday, 15 February, 2018