Divorces are messy, and cryptocurrencies are helping to make them a whole lot more so.
Virtual currencies such as Bitcoin and Ethereum are a new challenge for lawyers, plagued with volatility and secrecy that is extending the already painful process of dividing a couple’s assets.
The rising popularity of Bitcoin -- and for a while at least, its rising value -- means more separations involve the currency, which is difficult to trace and hard to value. Although parties have a duty to provide full disclosure of their assets in a divorce, the anonymous nature of cryptocurrencies potentially make them a safe haven for spouses wishing to hide their money from a warring partner.
“Often in a divorce one spouse is looking for a pot of gold that doesn’t exist. But with cryptocurrencies, it’s possible the pot does exist,” Toby Yerburgh, head of family law at Collyer Bristow in London, said in an interview. Yerburgh said he started to get cases where partners are concerned about hidden Bitcoins since the currency became better known last year.
Lawyers in the U.S. and the U.K. are trying to get their heads around Bitcoin as more clients ask what it means for their divorce. “I’m getting calls from lawyers all over the U.S. trying to get familiar with the language around cryptocurrencies,” Woodland Hills, California-based Peter Walzer, president-elect of the American Academy of Matrimonial Lawyers, said in an interview. “We have to learn some new words for old ideas.”
If one side decides not to disclose or provide evidence of their holdings, the divorce process becomes more expensive and time-consuming, and could result in the partner failing to get a fair share of assets. This can amount to a lot of money in the U.K., which has a reputation of being a more sympathetic place to play out high-stakes divorces, because judges generally order a 50-50 split of assets, giving equal weight to the work of a wealth creator and a partner.
“It’s creating another layer of distrust that we haven’t had to deal with before,” Jo Carr-West, a partner at London-based Hunters, said in an interview. “The public perception that there is a lack of a paper trail causes the anxiety.”
Offline Currency
Cryptocurrencies traded using an online exchange or bought with funds from a bank account can be easier to trace and value. But if a cryptocurrency is moved offline -- for example, if someone transfers their digital wallet onto a USB -- then it becomes more difficult. In this case, a digital forensics expert can be brought in to search through the spouse’s email to determine what transactions have taken place. This is a slow process that can cost thousands -- sometimes more than the currency itself is worth.
“Cryptocurrencies make things complex if you have a spouse who’s determined to hold on to their money, same as if they were hiding assets overseas,” Victoria Clarke, a solicitor at Stowe Family Law in the U.K., said in an interview. “We have the tools to trace Bitcoin. The difficulty is that some lawyers don’t necessarily understand it yet -- you need knowledge of the asset you’re trying to get hold of.”