It is important that divorced clients obtain a fair financial settlement so that their respective advisors can help them make the most of it and move on with their lives.
This process begins with “full and candid disclosure,” where both parties are legally obligated to provide the other with a true picture of their financial situation.
Because crypto is unregulated and digital wallets are anonymous, you can do whatever you want
However, does the possibility of using cryptocurrencies to hide assets complicate the financial side of divorce, given the decentralization that characterizes them? If so, what can be done, knowing that cryptocurrencies are not regulated?
Because cryptocurrencies are relatively new, highly volatile, and not covered by regulation, some advisors and clients may be wary of them and know little about them. However, a partner in a married couple may find crypto attractive because they control their assets, rather than a large financial institution such as a bank.
“We don’t know who came up with the idea for cryptocurrency, but it was partly in response to the credit bubble of 2008,” says Marcus de Maria, founder and chairman of Investment Mastery, an investment management firm. financial education.
The difficulty with cryptos is to prove that they exist. A digital wallet is anonymous – it’s just a code on the blockchain
“The big boys can’t invest until it’s regulated; they can’t do anything that isn’t regulated.
Without financial institutions operating in the middle, crypto transactions are faster and cheaper than conventional banks. But the personal information that would reveal the owner’s identity is encrypted, making it anonymous, and it is this that causes potential problems in the financial arrangements of divorcing couples.
If a partner is unaware that their spouse holds cryptos, they could lose their share of those assets.
“It can be easy to hide assets, like who knows how to look?” said of Maria.
Lawyers for the family say Form E, the financial statement that divorcing couples must complete and sign, was designed years ago and makes no reference to cryptocurrencies. However, this is no excuse for non-disclosure of digital assets as courts treat them as property.
Procedure and regulation are catching up and slowing it down
“The penalties for non-disclosure are potentially severe and may involve liability for other parties’ legal fees, as it is technically perjury,” says Alistair Myles, partner at law firm Ribet Myles.
“I have been in cases where there has been talk of a referral to the Director of Public Prosecutions for perjury.”
Treating cryptocurrencies as property means they can be subject to an injunction if there are problems finding them.
“But the difficulty they present is proving they exist,” says Hetty Gleave, partner in Fladgate’s family law team.
The big guys can’t invest until it’s regulated; they can’t do anything that isn’t regulated
“A digital wallet is anonymous – it’s just a code on the blockchain. If you can trace an asset to a wallet using an injunction, it’s a wallet you don’t know.
If financial planners involve both spouses in financial discussions, it is less likely that one partner will be in the dark about their spouse’s finances, including crypto, if the relationship breaks down.
“If someone got into crypto three or four years ago when it was cheap, they could be sitting on a valuable asset that can’t be found,” Myles says.
“Their partner has to be vigilant. They should ask if they have it. Has spouse ever talked about crypto? The more they know, the stronger they will be. »
It is possible to hire forensic accountants to trace hidden crypto assets, but this will increase costs and may not be worth it.
Has their spouse ever talked about crypto? The more they know, the stronger their position
Gleave recently attended an event at the Law Society, where judges said they meet with a crypto case every two weeks, so the law in this area is developing rapidly.
Representatives from cryptocurrency exchanges were also present at the event and pledged their support – they don’t want to be seen as the bad guys.
“The big problem with crypto is that because it’s unregulated and digital wallets are anonymous, you can do whatever you want,” says Gleave.
“But the procedure and the regulations are catching up and slowing down slowly.”
This article appeared in the September 2022 edition of MM.
If you would like to subscribe to the monthly magazine, please click on here.