Crypto Currency and Divorce

For anyone going through a divorce, dealing with the breakdown of their relationship is daunting enough.  Those feelings must be exacerbated in cases involving a spouse who may have spent time planning for this possibility and structuring their finances to conceal their assets. For spouses who can afford it, the use of trust structures or companies located in offshore jurisdictions are commonplace. In truth they are now so commonplace that experienced lawyers and the courts are well versed in how to deal with them. What then is the position with digital assets such as crypto currencies and NFTs during divorce?

Is crypto currency the future for spouses looking to conceal their wealth and what can be done about it?

Cryto currency and divorce – what does it all mean?

Crypto currency is best described as digital money. Bitcoin is perhaps the most well-known but there are many others. They operate independently of a traditional bank or government control and security is provided by a technology called a blockchain. They are accessed and managed using open source software meaning that anyone who wants to have access can do so and have complete control over their assets. They are extremely difficult to trace. More and more companies are accepting payment using Bitcoin. Values fluctuate but in April 2023 one bitcoin is worth around £22,000 and the price has been as high as 65,000 USD in 2021.

NFTs (non-fungible tokens) are similar in that they use units of data to create one of a kind digital certificates of ownership. They can be applied to digital artwork and some have been traded for millions of pounds.

In divorce cases involving spouses who play by the rules, the existence of digital assets, including any crypto currency, and their value would be disclosed so that the court can deal with them and take them into account in the financial division. This is because both spouses have an absolute duty to give full, frank, clear and verifiable disclosure of their financial resources to each other and to the court. This includes disclosure of their income, property and any other financial resources they either have now or are likely to have in the foreseeable future. In the important 2019 High Court decision of AA v Persons Unknown & Ors, Re Bitcoin, the court declared that crypto assets constitute property under English law. As a consequence the court has the full range of powers to deal with digital assets in divorce proceedings meaning they will be subject to the same sharing principle as all the other assets of the marriage.

What then can be done when spouses try to hide crypto currency in divorce?

They may feel that their digital assets are virtually impossible to trace as they operate outside of any traditional structures. They may be registered anywhere in the world to obfuscate jurisdiction. Thankfully, the reality is that they can leave a trace and there are signs which can be followed.

Anyone investing digitally into crypto currencies etc is likely to;

  • Be tech savvy – they may have different storage devices and separate laptops.
  • Be highly engaged in the digital world – and follow information that is constantly provided.
  • Use particular digital exchange apps – these are used to access their investments, such as Kracken or Binance.
  • Have accounts with banks such as Revolut – these give access to crypto assets.

Any number of digital exchanges could be used but the reality is that the original investment must have come from somewhere and sometimes the key is to find the original entry point. This will involve forensic analysis of financial statements. After that transactions can be scrambled to such an extent that it can be very difficult to follow. This is not a role for traditional family lawyers and instead we recommend working with specialist analytical blockchain investigators.

What can be done in court when it comes to crypto currency and divorce?

The court has a wide range of powers to compel the reluctant spouse to give full disclosure. The ultimate sanction is to committal to prison in the most extreme cases. It should also be made clear that any financial order made without disclosure of all relevant financial resources is vulnerable to being set aside at a later date.

Orders can also be made against the digital exchanges to produce information and restrain the movement of any funds. They may be reluctant to comply but pressure can be applied. For example, it is not a good look for any organisation to be in breach of an English court order when applying to be recognised by our regulators. HM Revenue & Customs (HMRC) confirmed from 2024-25 self-assessment tax return forms will feature a new segment to declare any gains from crypto assets for individuals and trusts.

Regardless of a spouse’s willingness to disclose information to HMRC, to have UK customers, digital exchanges are expected to disclose user data to HMRC.

Final thoughts on crypto currency and divorce

When dealing with a specialist subject such as cryto currency and divorce, we recommend working in partnership with experienced lawyers and analytical blockchain investigators who can follow the chain and unravel the course of dealings.

Avoid working with practitioners who may be dealing with assets they don’t understand as it is unlikely that you will obtain full disclosure if your lawyers don’t know what questions to ask. Instead, we recommend a partnership where all concerned have the required technical expertise to deliver the best results.

For more information or to discuss your case – please contact the team at Watson Morris today.

Written by Peter Morris

April 28, 2023

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