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Is cryptocurrency about to make divorce even more difficult?

As the value of cryptocurrencies like bitcoin continues to soar, so does its public profile. It seems a day can’t go past without new comment on the on the regulation, legality and taxability of bitcoin. Now it appears we may have to add ‘divorce settlement’ to the list of potential considerations.

When divorce becomes the unavoidable conclusion to the break-up of a marriage, the couple concerned need to come to an agreement on how their assets will be divided. With more and more people now owning cryptocurrency, the discussion on if and how that particular asset should be dealt with during the divorce process is now gaining momentum.

The only problem is for as long as divorce has been an option, the likelihood of one side of a divorcing couple hiding or even draining their assets for their own benefit has been an issue. The unregulated, virtual nature of bitcoin makes it even easier for the party who owns cryptocurrency. Until we see the introduction of a more regulated environment at least, the owner can (on the face of it at least) simply give their coins away before their divorce goes through.

Even though the digitalisation of the majority of our goods and chattels should make it easier to identify all of the assets in a marriage at a given point in time, can we really make an accurate assessment of how to split cryptocurrency? While the realistic answer to that question is the split should be based on the value of the portfolio at the time of divorce, there is an even more important point to consider – will any of the cryptocurrency owned by a spouse even be tabled?

There are a number of ways a husband or wife could hide their cryptocurrency:

They could fail to declare it altogether if they had never made their partner aware it existed in the first place

They could claim it had been stolen via an online scam or by a fraudulent trading platform

They could try and fox their partner by offering an ongoing percentage of their portfolio rather than accepting a 50% payment on the portfolio’s current value

However honest one half of the couple might be, there is no doubt that the rise and rise of bitcoin and the other cryptocurrencies will, over time, add additional cynicism, complexity and no doubt unpleasantness to the divorce process. To try and unravel how this could play out we asked our partner Richard Howlett – a partner at Selachii LLP and a solicitor with extensive experience both in resolving bitcoin and more general matrimonial disputes – what he thought:

“Bitcoin or any other cryptocurrency should simply be deemed as an asset in divorce proceedings in the UK because every asset owned by each party in a divorce has to be taken into account in order to reach a fair settlement.”

However, his personal experience of this type of case has somewhat hardened Richard’s view of what is likely to happen next:

“For me the only difference between cryptocurrency and more traditional assets – say, savings or property - is that there is a fair chance the party who owns the cryptocurrency has never told their partner they ever owned their holding. If that is the case then it won’t be declared and if the crypto assets aren’t discovered by the legal team acting for their spouse, then it won’t be taken into account in any settlement.  Under UK law this would lead to an unfair settlement.”

As Richard goes on to explain there could be some light at the end of the tunnel for the wronged spouse:

“If it was subsequently discovered that the cryptocurrency did exist - for example if the ex-spouse who owned it started to cash it in giving them sudden new wealth - the affected spouse could return to court and ask for full disclosure.  If the holder was to ignore any resulting court order, they could well end up in prison for contempt of court.”

Richard then went on to give a clear warning for any divorcing spouse planning to hide cryptocurrency during a divorce:

“Anyone trying to avoid the declaration of cryptocurrency in a divorce needs to be very careful. Both the courts and Judges are becoming more aware of all of the tricks being employed to hide assets so my feeling is it won’t be long before they introduce questions relating to crypto assets to Form E (the main financial form completed by both parties to a divorce that lists all of their assets).”

“So while it is possible for someone to hide or avoid disclosing bitcoin, legally it’s no different to not disclosing information about shares, overseas bank accounts or property.  As it stands, the party doing the hiding would not only potentially be sent to prison for contempt of court but could also find themselves facing a significant costs order made against them for unreasonable conduct.”

If you have found yourself facing any form of dispute involving Bitcoin or any of the other cryptocurrencies or need help to reach a fair settlement after a divorce or any other civil or commercial dispute, call us today on 020 7792 5649 or email us at info@selachii.co.uk.

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