Crypto Divorce – will the increasing popularity of cryptocurrencies fuel an increase in asset concealment
Whether we understand them or not, the last few years has seen a meteoric rise in the popularity and use of cryptocurrencies such as Bitcoin and Ethereum. Investment in this sector can be volatile. Staggering growth or sharp falls in asset value can be achieved in a very short space of time. By way of an example, in May 2021, a few tweets involving Bitcoin from the account of Space X and Tesla billionaire Elon Musk led to investors to carry losses of more than 30% in one day!
As a knock-on effect to the rise in cryptocurrency holdings, divorce practitioners are likely to see a steady increase in financial remedy cases involving the digital asset. Whilst most traditional tangible and intangible assets are easily traceable, trading in cryptocurrencies can be virtually untraceable with the sector itself being generally, for now, unregulated.
What can a party do if they suspect their partner is hiding Bitcoins from them?
In financial remedy proceedings, parties have a duty to provide full and frank disclosure of their financial interests and assets, including any investments held in cryptocurrencies. Concealment by way of non-disclosure will leave the perpetrating party in contempt of court and liable to a number of potential punishments including costs penalties.
What can a party do if they suspect their partner is hiding Bitcoins?
A few recommended steps could be as follows:
- Instruction of a forensic analyst
Whilst tracing money held within a blockchain (a sort of digital ledger) can be very difficult to trace, it is easier to identify a party’s initial entrance into the digital market. This will require digital investigation. A forensic analyst should be able to assist in identifying these potential entry points into the digital market. Should you hold disclosed bank statements, a further analysis of these may highlight digital coin or wallet references. Reading financial statements can be difficult particularly if you do not know what you are looking for so seeking the view of an expert is recommended.
In a similar way to bank statements, the reading of a person’s tax return, if accurately completed, may provide the start of a paper trail to identifying the encashment of any previously held crypto holdings due to the capital gains tax consequences arising from their disposal. Make sure that tax returns are requested covering the years in which you believe any cryptocurrency was disposed.
Should digital evidence not be forthcoming, proving evidence of digital asset concealment is likely to prove problematic. Should you possess any email or text messages highlighting the existence of digital assets, these can be brought to the attention of the court.
What should a suspecting party not do?
It is important to make sure that when seeking information to highlight the existence of digital assets, unlawful steps however tempting are not taken to track them down. Hacking into a person’s computer or accessing private emails should not be done under any circumstances and a dim view of such actions will be taken by the court which, in extreme circumstances, can lead to criminal convictions.
Should you suspect that your spouse/ex-spouse is attempting to conceal crypto currency, you should seek the assistance of a family law specialist for advice.