Earlier this month, Elon Musk revealed that Tesla, the electric car company run by the world’s richest person, had bought $1.5bn (£1.1bn) in bitcoin and might soon also accept payment in the popular but controversial cryptocurrency.
News of Tesla’s investment boosted bitcoin, and while lately it dropped from its record high, it appears to be rebounding.
Cryptocurrency investment continues to move into the mainstream as global interest rates remain at record lows. That increase in the uptake of cryptocurrency may well have an impact on divorce. Indeed, one of our own team, Vicki Potts, was surprised by her fiancé who informed her in casual conversation that he had recently purchased some bitcoin himself without her knowledge.
Even for couples who are normally open with each other about finances, this shows how easy it would be for one spouse to hide cryptocurrency from the other and how this could cause additional complications in divorce cases.
The ownership of digital currency certainly makes it more difficult to confirm the wealth of an individual, due to the anonymity associated with this form of asset. Cryptocurrency uses a system called ‘distributed ledger technology’ which means that all transactions are entered into a ledger that is then simultaneously sent to every computer which is on that network. Each user has a ‘public key’ (a string of numbers) which is visible on the ledger, but to log a transaction they also have a ‘private key’. A private key is only known by the user, and only that user can link their private key to the public key, making it virtually impossible to identify them on the ledger.
When dealing with financial matters arising out of divorce, parties are under a duty of full and frank disclosure. This means that they are obliged to disclose all their income and assets, which would include any cryptocurrency they owned. The challenge, however, is that it may seem all too easy or tempting for a party not to disclose their cryptocurrency in the hope this will remain untouched by the court or their spouse.
Cryptocurrency is not as elusive as some may think. For example, from just bank statements alone, it may be possible to identify payments that have been made to well-known banks or companies who deal in cryptocurrency. There may also be entries showing money paid into a cryptocurrency ATM (a machine that converts money into cryptocurrency) or to a crypto exchange (a company that exchanges money for cryptocurrency). The key is knowing what to look for and knowing the right questions to ask.
During the financial disclosure process, parties are entitled to raise questions on each other’s disclosure. When one party to a divorce may own cryptocurrency, it is important to have a qualified solicitor providing advice on how cryptocurrency can be identified and what further questions should be asked. It can take some detective work but finding evidence that someone holds cryptocurrency is easier when you have someone who knows what to look for. An experienced lawyer will then be able to advise on how such an asset should be factored into a financial settlement.