Hidden wealth: Crypto and the new challenges of divorce law
Crypto assets are becoming a more ubiquitous type of investment alongside stocks or real estate. The pseudonymous nature of these assets renders it easier to refrain from financial disclosure during divorce proceedings, despite the fact that secrecy of financial assets is not uncommon during divorce. Rather, crypto has become a favourable way to hide investments from spouses as opposed to previously popular methods such as offshore trusts or stashing physical cash. Concealment of financial assets creates another challenge of lengthy and complex proceedings for courts due to extra searches to determine if a spouse is hiding crypto assets. Courts must seek to implement stronger search methods to detect hidden cryptocurrency in order to facilitate these proceedings during divorce.
Background to assets in divorce law
Divorcing parties in the UK must fill in Form E which requires “a full, frank and clear disclosure of all financial and other relevant circumstances”. There is no part of Section 2, which deals with financial details, that explicitly asks to state any crypto assets, but some solicitors claim that it should be included in “other assets”. This specific part of the form states that “Any asset not disclosed elsewhere on this form even if held outside England and Wales” must be disclosed. Although it is not specifically asking to disclose crypto assets, the broad criteria alludes to the fact that it should be included, so why are these investments being hidden from spouses?
There may be concerns from partners about the amount of money invested into these assets, or even how they may be split during the proceedings which may drive them towards secrecy. Any assets acquired before marriage are considered non marital assets, however, if these assets appreciate in value during the marriage or become intertwined with marital funds then they may be included in the marital estate. Despite which spouse initially purchased the crypto, any profits generated during the marriage will be considered marital property. Some spouses may consider this division of funds unequal, especially if they had invested more into the cryptocurrency during the course of the marriage.
How can courts adopt stronger rules?
Only a few options exist for detecting crypto in these cases of concealment. A simple method would be reviewing financial statements or deposits from a bank account, which can allude to hidden cryptocurrency. For more complex methods of concealment, courts can hire digital forensic specialists to search the blockchain transactions in the relevant computers. Unfortunately, this method is expensive, requiring time and effort to conduct.
Courts, as well as legislative bodies, should aim to implement more affordable and futureproof methods of detection. One method could be to implement specific disclosure orders to compel spouses to provide full details like seed phrases or wallet addresses. Similarly, altering ‘Form E’ to include a section for digital assets such as stocks or cryptocurrencies directly demands parties to disclose these assets, and failure to do so would result in court proceedings. These alterations allow for a more futuristic and comprehensive understanding of the types of assets within the marriage, alongside traditional investments such as real estate or businesses. However, it may take some time for these legislative changes to come to fruition, and there must be immediate change to how the courts handle these issues during proceedings.
As stated, there are concerns from partners over how the asset will be split. Due to the fact that crypto is considered a matrimonial asset, there will be a presumed 50/50 initial split. In order to deter spouses from secrecy, the courts could look to award the highest percentage to the party that had invested more money into the asset over the course of the marriage. Moreover, spouses should be entitled to no more than the net amount they invested into the asset. These methods could be used by the court in the short term in order to soften anxieties around how the assets will be split, which is a driving factor towards concealment. However, legislative intervention must be made in order to deter financial dishonesty, and financial crimes in the long term.
By Fiza Ashraf
