Divorce professionals are reporting that cryptocurrencies are fuelling a new trend of asset concealment when couples separate.
Offshore trusts and investments are well-known as tools used by wealthy individuals looking to hide assets. The increasing appeal of cryptocurrencies to even the smallest of investors means concealment of assets is likely to become much more commonplace.
This is because the anonymity of crypto holdings is attractive to many individuals, despite the high volatility in the largely unregulated digital markets, as trading can be virtually untraceable.
A lot of the recent fluctuation has been attributed to billionaire Elon Musk, who has been forthright in declaring his interests in the sector. One of his latest posts related to his son’s holding in dogecoin, giving the meme-based cryptocurrency a boost after recent falls.
Recently Musk revealed that his company, Tesla, had bought $1.5 billion of bitcoin and would be accepting payment for the electric cars in the cryptocurrency. However, just a few weeks later, this was retracted when he announced that Tesla would not, after all, be committed to bitcoin because of environmental concerns due to high energy consumption in its production. In another comment, this time about his rocket company SpaceX, Musk said that he would “put a literal dogecoin on the literal moon.”
Each statement by the highly influential entrepreneur saw cryptocurrency peak and trough. In May, investors carried losses of more than 30% in a single day when the combination of Musk and a ban by Chinese regulators triggered fears that the crypto bubble was about to burst. China is one of the biggest markets for cryptocurrencies, with most mining power coming from Chinese data centres.
Cryptocurrencies rely on blockchain technology, which is effectively a digital ledger that is shared and verified across innumerable computers worldwide. It is protected by complex cryptography in order to make it secure and resistant to fraud. Whilst blockchain technology is playing an increasingly important role in delivering greater security for cyber transactions and the transfer of money, such as in property transactions, the digital currencies which have thrived thanks to blockchain technology have been subject to concerns ranging from lack of regulation to investment scams.
In recent weeks, UK banks have taken steps to block some purchases using cryptocurrency. For example, Barclays and Santander have both prevented account holders from purchasing through the Binance trading platform after regulators banned it from undertaking regulated activity in the UK due to concerns over its anti-money laundering standards.
Whilst the UK Government continues its consultative process on future regulation to prevent criminal use (while still enabling innovation), many of those engaging in cryptocurrency trading are currently untraceable due to much of the sector being unregulated which means that the usual securities, anti-money laundering and consumer protection rules do not apply.
Lauren Rigby, Family Solicitor at Howell Jones, has said: “Despite cryptocurrency being a high-risk investment, it has quickly become a fairly common investment as you don’t need a significant outlay to get started and, unlike schemes such as offshore trusts, it does not require specialists to set it up.
“It can be tricky to link crypto trading to a particular individual, so anyone going through a divorce who believes that that their spouse may have holdings should specifically raise this in their request for assets to be declared.”
One way of identifying digital currency holdings would be to request access to bank statements and look out for transactions with a digital coin or wallet reference as they are bought using a ‘fiat’ country-based currency, such as sterling. Cryptocurrency may also have been used to purchase material goods, which could then assist by linking the physical asset to a name and address.
Capital gains from the sale of cryptocurrency should be declared, therefore an individual’s tax returns may provide a paper trail to identify the encashment of any crypto holdings.
In the absence of other evidence, text messages or emails which mention crypto holdings can be shown to the court.
She added: “However confident you are that assets are being hidden by your spouse, it’s important not to break the rules to track them down. It is far better to highlight to your spouse that failure to disclose assets can attract hefty penalties – most seriously, imprisonment – and that any financial settlement order made by the courts can be reopened if further assets are later identified, than to access their email or bank account yourself, regardless of whether or not you know the password or whether your spouse previously chose to share it with you.”
There are considerable consequences for hacking emails or opening physical mail addressed to someone else which can result in a criminal conviction, as was highlighted in a recent divorce case involving a high net-worth couple. Wealthy London banker, Daniel Arbili, was accused of hacking into his ex-wife’s email account during a bitter divorce battle involving assets including a string of properties in France and Britain, luxury watches, an Aston Martin and the family’s grade-II listed home in rural Essex.
When Mr Arbili claimed that new evidence showed his wife was richer than originally thought using information he had supposedly obtained through a French enquiry agent, in order to appeal the financial order which had already been agreed, his ex-wife claimed that Mr Arbili could have only obtained this information by hacking into her e-mail account. The Court in this case refused to allow Mr Arbili’s appeal to proceed.
“As in this case, the Courts are unlike to admit as evidence any information which has been obtained in this way, and the situation could be made worse if criminal proceedings were then taken against the investigating spouse.”
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This is not legal advice; it is intended to provide information of general interest about current legal issues.