Historically, aggrieved and divorcing partners attempting to hide assets during a divorce proceeding have tried to do so through shell companies or offshore bank accounts – and attempting such a hoodwink can result in contempt of court charges. But now secretive spouses willing to risk the wrath of the courts are leaning towards another loophole: Bitcoin and other decentralized “cryptocurrencies.”
Cryptocurrencies have grown in popularity largely because of their decentralized nature: there is no central financial institution acting as a middleman, collecting transaction fees and imposing other account limitations. This lack of any sort of overseeing authority means that the court’s traditional methods of enforcing financial discoveries in a divorce case – injunctions, subpoenas and the like – have nowhere to be issued and are essentially meaningless.
“Where a party has not disclosed a crypto holding, there is no body to seek disclosure from, given the decentralization, meaning forensic experts will need to become involved to trace the crypto through seizure and searches of electronic devices,” says British lawyer Vandana Chitroda.
Cryptocurrencies obscure financial holdings in divorce proceedings
Cryptocurrencies are not entirely untraceable; each cryptocurrency transaction is recorded in the “blockchain;” a layman’s way of understanding the blockchain is to describe it as an encrypted online ledger. While blockchain ledgers are permanent and theoretically help to keep online cryptocurrency transactions legitimate, it still requires a good amount of computer programming and encryption knowhow to access, research and identify meaningful data within them, resources the court may not have at their disposal. And divorce lawyers are only now warming up to this new generation of assets – and the hieroglyphic language that accompanies it.
A spouse who’s determined to hold on to their money…
Compounding the difficulty of tracing crypto-assets is the volatility of their worth. Since the value of cryptocurrencies are determined largely by their public perception of value, the worth of these assets is constantly fluctuating. Because of this, Chitroda says, “There will have to be valuations made at every step in the proceedings. You would then have to agree a value on the date of the final hearing.” This means that although a partner could have built up a substantial crypto fortune when filing for divorce, it may have diminished by the time of settlement. Sometimes the slow, costly process of crypto-asset research could end up costing more than the currency itself is ultimately worth.
However, some view the emerging challenges with cryptocurrency as a temporary growing pain versus a long-term inversion of justice. Chitroda states, “We are only seeing the first wave of these cases through the courts and we haven’t reached a stage as yet where the courts have had to make orders.” American lawyer Jonathan Fields adds, “It’s now a standard part of our discovery process. I will make sure I’ve got the right language and questions to ensure a partner discloses their cryptocurrencies.”
Courts have long dealt with shifty parties who try to stash assets in hard to trace overseas accounts. With the problems now apparent and becoming more widespread, the boom days of Bitcoin bamboozling may already have potential scammers thinking twice.
Bruce Robertson
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