Disclosure of Crypto Assets in Financial Settlements

Should crypto assets and cryptocurrencies be disclosed in financial proceedings?

When it comes to reaching a fair financial settlement following divorce, the full and frank financial disclosure of both parties is essential. In reality, however, some assets are easier than others to hide, including assets kept in a foreign jurisdiction and intangible property such as cryptocurrency and crypto assets. Unfortunately, the enormous rise in cryptocurrency and crypto asset ownership and their associated values means that some parties to financial settlement proceedings are deliberately concealing their digital assets. In this article, we will look at whether crypto assets are taken into consideration in financial settlements following divorce, why they are often difficult to trace, and what you can do if you believe your ex-partner is hiding digital assets. 

Should crypto assets and cryptocurrencies be disclosed in financial proceedings?

Yes; as far as the law is concerned, all financial assets must be disclosed in full when completing a Financial Statement (Form E) in advance of a financial order being made under the Matrimonial Causes Act 1973 (MCA 1973) and the Civil Partnership Act 2004 (CPA 2004). As such, no exception is made for novel or non-traditional asset classes.

While some people may be tempted to withhold some of their assets in the event of legal separation, especially those that are difficult to trace, such as crypto assets and currency, this is never advisable. As stated on Form E, “Proceedings for contempt of court may be brought against a person who makes or causes to be made, a false statement in a document verified by a statement of truth”. Even where a financial order is agreed upon, if assets are later discovered to have been hidden by one party, the courts will not hesitate to vary the order in favour of the other party.

Why is it difficult to trace cryptocurrency and assets?

Cryptocurrency and assets can be extremely hard to trace and prove for a number of reasons. Cryptocurrencies often use digital ‘addresses’, but these are not linked to the identity of the owner. Unfortunately, there is no central authority with the personal identity details of cryptocurrency owners. Some cryptocurrencies even claim to be entirely private and anonymous such as Monero, Zcash, and DASH. As Investopedia explains, “Monero transactions are much more difficult to trace because they use ring signatures and stealth addresses”.

Other technology also exists to make it hard to trace the origin of cryptocurrency, including ‘mixers’ and ‘tumblers’. Mixers and tumblers are used to mix various streams of potentially identifiable cryptocurrency, thereby making transactions increasingly untraceable. 

What can be done to ensure the disclosure of crypto assets in divorce proceedings?

If you believe that your ex-partner has crypto assets or cryptocurrency that they have failed to disclose in their financial statement, it is advisable to speak to a divorce Solicitor.

Divorce Solicitors partner with specialist crypto asset forensic experts to carry out the necessary analysis. In many cases, where no information is available (e.g. addresses) to identify crypto assets, they will start by looking at bank statements to find payments to crypto exchanges, crypto trading apps, or crypto payment companies. Tax records may also reveal any capital gains or losses made as a result of the sale of cryptocurrency.

It is important to point out, however, that even if you have a strong suspicion that your ex-partner may be hiding their digital assets, you should not be tempted to access their digital devices without explicit permission. Doing so may constitute a breach of the law.

In some cases, digital assets may be so well hidden that traces cannot be found. In this scenario, it is advisable to provide any details that you have (e.g. Whatsapp messages, text messages, emails etc.) which suggest the existence of crypto assets. Your Solicitor can also request specific disclosure from your ex-partner in relation to any crypto assets they hold. The goal in such situations is to make it clear that there is a reasonable belief that your ex-partner owns crypto assets that they have not disclosed and that if they continue not to comply, they risk receiving a prison sentence.

Another consideration to bear in mind is the sheer volatility of the crypto markets. Certain cryptocurrencies such as Bitcoin have lost substantial value in recent months, and, therefore, it is important to weigh up the cost and time involved in tracing such assets against the amount to be gained.

Final words

If you have a good reason to suspect your ex-partner has not fully disclosed their assets following divorce, it is advisable to a specialist in family law. They will listen to your case and outline the options available to you. Family law Solicitors have several tools available to compel withholding parties to disclose their full financial status, and in most cases, this is sufficient to ensure their compliance. If this is not the case, through the use of crypto forensic expertise and with the assistance of the courts, it is normally possible to resolve the matter and ensure a fair financial settlement is reached.

For a free consultation regarding any legal matter relating to divorce or financial orders, please call our understanding and caring family law team on 0208 300 6666.