Crypto assets in Divorce: A Risk for Asset Concealment? – Blockleaders

Like any other kind of property, cryptoassets must be declared during a divorce; if they are not declared, this could be considered non-disclosure which brings with it serious legal ramifications.

Due to the fact crypto assets are a relatively new form of digital property, they can be difficult to identify and easy to conceal. This poses problems for those involved in a divorce where ownership of crypto assets must be considered.

Within the context of divorce proceedings, it is important for both those who are in possession of crypto assets and those who are trying to access them to understand how to meet the requirements of the family law system.

How common is asset concealment during a divorce?

The methods that can be used to conceal assets are diverse, creative and increasingly complex. From undisclosed properties, sophisticated tax schemes and offshore company holding structures, it can be difficult to track down assets that are buried within legal structures, and tracing assets can sometimes be a complicated administrative process.

Clients are often aware that their spouse may be attempting to conceal assets and are reassured that with the benefit of strategic and straightforward legal advice this can be addressed.

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How can asset concealment be dealt with?

Courts are not ignorant to parties who seek to conceal assets and there are various methods for dealing with issues relating to the concealment of assets during divorce. For example, parties may attempt to conceal assets and push them out of the court’s control by using offshore accounts.

In the UK, legislation has addressed this through the Sanctions and Anti-Money Laundering Act 2018 which provides a mandate to the governments of British Overseas Territories to make registers publicly available, detailing the assets controlled by those who own companies there. There are still other ways in which parties can seek to conceal assets.

Why are crypto assets more difficult to keep track of?

On top of the fact that crypto assets are a relatively new development and are still being assessed by lawmakers, cryptoassets are stored in digital form on servers. These are not owned by long-standing banks or reliable organisations that are heavily regulated.

Until new laws are made about how crypto assets must be registered, they will continue to be tricky to police. There is, for instance, no legal definition of NFT – how can one legislate for what is not yet defined?

Cryptocurrencies, such as Bitcoin, Ethereum and Tether, were originally created with the intention of users having more freedom and control over their finances, escaping the restrictions that are applied to traditional currencies that are controlled by banks. They are positioned separately from other assets, such as shares, which has meant they have not been as heavily controlled.

Notwithstanding this flexibility, transactions are traceable. The movement of crypto assets across different digital wallets is readily identifiable. The difficulty arises when one wishes to confirm the identity of the wallet holder, this information does not currently have to be declared. This can pose difficulties for clients in divorce proceedings who believe their spouse is concealing cryptoassets.

What is the solution to tracking crypto assets?

While the issue of crypto asset concealment is still proving difficult to resolve, legal and financial institutions are becoming increasingly aware of the difficulties that crypto assets pose and are beginning to turn their attention to finding a resolution. This is likely going to include the freezing of wallets and accounts, requests to platforms to disclose details of wallet holders and the appointment of forensic experts to scrutinise and analyse the blockchain transactions.

More blockchain experts are coming forward with knowledge on how to trace the movements of crypto assets, using the digital ledgers that collect and store information about how they are used to place ownership on them to their advantage. This means that crypto assets will not be able to be completely concealed, and as this action develops, those trying to do so run an increasing risk of penalty within the family courts.

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