The rise of the cryptocurrency has been widely reported in the news, along with the stories of those who have made it big: Bitcoin billionaires and cryptocurrency traders working from home making millions. As it becomes more accepted as a legitimate currency, source of income and asset, how will it work if a married couple with cryptocurrency decide to get a divorce?
Many jurisdictions around the world do not have laws or regulations around cryptocurrency. The nature of digital money gives governments plenty of headaches, and many of them have started enforcing regulations against Bitcoin and altcoins. The main worries are related to illegal activities, money laundering, and tax evasion powered by cryptocurrencies.
It turns out that some crypto fans may soon ask for a particular type of regulation themselves, laws that protect their digital assets in case of a divorce. In the UK, a divorcing couple right now is quarreling over a stash of coins worth some $830,000, and there are no laws which provide any clarity about what to do with it.
UK law firm Royds Withy King is currently advising no less than three divorce cases that involve cryptocurrency. The spouses are “seeking the disclosure and a potential share of cryptocurrency assets.” But there are no laws are governing such cases.
Only one of them, however, stands out, because of the value of the couple’s crypto stash. The husband invested £80,000 ($110,000) in cryptocurrency, which is now worth £600,000 ($830,000).
However, the lawyers expect the number of cases to increase in the future. “These are the first cases we have seen, and we expect to see many more, Royds Withy King partner Vandana Chitroda said. “We believe that cryptocurrencies will be a significant feature in a large number of divorces. Whilst cryptocurrencies are volatile, they are not going to go away. It is important that if you believe your husband or wife has invested in or purchased cryptocurrencies, such as Bitcoin, and you are separating, you tell your legal adviser.”
Why Cryptocurrency is so Hard to Regulate
A recent survey by the Global Blockchain Council and SurveyMonkey found that 71% of cryptocurrency investors were male. And they may not be happy to part with their investment in the event of divorce. As Vandana Chitroda points out: “Volatility presents a real challenge when valuing cryptocurrencies. Valuations will have to be carried out a number of times during the divorce process as the case progresses.”
One of the appealing things that draws investors to cryptocurrencies is the anonymity. This is what Bitcoin prided itself on when it was first developed. But the feature that made it so appealing is also what has made it hard to prove in divorces. Suspicion that someone might have invested in digital currencies simply is not enough, and it is something that could potentially cost the English courts a lot of money to prove.
The second issue they face is due to their volatility. It is very difficult to fairly distribute an inherently volatile asset. Divorces have different ways in which they distribute monetary assets and risk laden ones, which poses a lot of problems when you consider that cryptocurrencies incorporate both. Assuming that the digital currencies have been disclosed and they can be identified, they belong more to the risk laden assets, but a fair balance will need to be struck in order to achieve fairness between the spouses.
But perhaps the biggest concern is the lack of a central authority when it comes to cryptocurrency regulation. This makes it nearly impossible to freeze these virtual assets in the case of a split, which makes it easy for spouses to convert their liquid assets to cryptocurrencies and hide them from their divorced partners.
The Family Law Act requires full and frank disclosure of the financial affairs of both partners who have to swear an oath and set out a complete statement of income, expenses, assets, financial resources and liabilities. Of course, this doesn’t guarantee complete honesty and it often takes the expertise of a family lawyer to track down any deception.
Hiding Assets is Never a Good Idea
It is recommended that you make your property settlement with the advice of a lawyer and that you make it legally binding. As in the example above, it can be hard to determine what you are entitled to and what a fair property settlement looks like without the advice of someone who knows the law well.
It’s actually pretty common for people who are considering divorce not to know exactly what their assets and liabilities are. Perhaps this is because one partner has always done all the finances, or because it’s too complex to understand. However, to make sure your financial settlement is fair, you’ll need to know exactly what you own and what you owe.