Divorcing Your Spouse? Get Ready To Disclose Your Crypto Assets

The disclosure of crypto assets is an emerging issue in family law concerning the obligation of divorcing parties to declare their crypto assets in a divorce proceeding. For family lawyers, this new practice area obviously presents a series of challenges ranging from the difficulty in obtaining evidence to the dwindling value of crypto-related assets. And for divorcing spouses, there may no longer be any hidden place for crypto assets to evade detection.

In the interest of equitable distribution of assets, whether jointly owned or

solely owned, parties are often well-advised to assist the court in identifying and valuing their crypto assets before it determines who should be awarded them on financial or non-financial grounds.

Disclosing one's ownership of crypto assets is fair and equitable in the eyes of the law because it removes speculation and helps the court to arrive at a fair and logical decision on divorce financial settlement.

Although the idea of declaring one's crypto assets in a divorce may not be particularly appealing, the inevitable shift toward doing so is as transformational as it is inescapable, as case law continues to treat cryptocurrency as property.

Soon, the need to take account of spousal crypto holdings may become so compelling that it becomes a routine law in multiple jurisdictions across the globe where the allotment of property by the court is concerned.

In what can be described as an emerging climate of crypto-related case law, the conditions for a full disclosure of crypto assets can be considered equitable largely owing to the gradual emergence of a legal framework recognising crypto as a legitimate source of earnings for individuals and businesses.

The conditions, which range from the length of the marriage to child support, are weighty considerations before the court and are compelling enough to make the responsibility to disclose crypto holdings fall on the parties in a divorce proceeding.

Tracking a Crypto Stash

Chances are that blockchain’s enduring promise of transparency will make tracing crypto investments much easier from the standpoint of forensic accounting. This, as one might argue, is not only capable of preventing divorcing parties from hiding their crypto stash but can help to override the myth of absolute anonymity where the forensic detection of crypto is concerned.

Above all,  as the call for crypto regulation grows louder across the world, its tax implications become more pronounced and the interests that accrue to crypto investments and ownership will ultimately lead to the conclusion that they are traceable and declarable assets in divorce proceedings over which the court is worthy enough to determine both the value and the sharing formula.

Just How Well Can Divorcing Spouses Conceal Their Crypto Assets?

One of the proofs of the rise of crypto-related divorce settlement is the viral story of a divorcing New York couple that brought crypto assets ownership to the legal fore. The long and short of this story was that a 12 Bitcoin stash belonging to the husband was discovered by a forensic expert to the vast astonishment of his wife who had no prior knowledge of its existence.

What was all the more interesting in this case was that the Bitcoin stash was found in an undisclosed crypto wallet where it had been hidden by the husband for God-knows-how-long until its eventual discovery.

However, following the discovery of the wallet, the wife automatically became eligible to receive a percentage of the husband's BTC holdings that roughly totalled $500,000 at the market value. The status quo prior to the uncovering of the Bitcoin stash was one in which the wife was completely unaware of her husband's crypto holding, and this, as expected, raises a valid question as to whether a spouse has an obligation to disclose his or her crypto portfolio in a subsisting marriage.

In this New York couple's case, there was obviously the absence of an obligation by the husband to disclose his crypto holding but the versatility of blockchain technology to render crypto assets on a public blockchain traceable outshines the potential to evade possible detection.

The Place of Forensic Investigation

It can be an uphill task to uncover a stash of crypto assets stored in different wallets on the blockchain but resorting to forensic investigation can help to remove speculation and establish the truth. As evidenced in the case of the New York couple, a forensic expert can be of tremendous assistance to the court and to the divorcing spouses when it comes to making a full disclosure of their assets in a divorce financial settlement.

A forensic investigation into the availability of crypto assets is calculated to establish pieces of evidence ranging from the ownership of a crypto wallet to the history and value of the crypto assets. But this process is not as easy as it appears. Forensic investigators must first identify the types of crypto exchange or wallets holding the crypto assets in order to be able to assist the court in either issuing a freezing order or granting either of the divorcing spouses a share of the crypto assets based on estimated value.

When a stash is held by a Centralised crypto exchange such as Binance, a forensic expert can very well advise a divorce Attorney to ask the court for a freezing order because centralised crypto exchanges are known to abide by a KYC(Know Your Customer)policy and the AML law of the country where they are licenced to operate.

A KYC’ed spouse holding crypto assets may be easy to identify on a centralised exchange and the value and transaction history of the stashed assets can also be easy to investigate.

However, a Decentralised crypto exchange where a crypto asset is stashed away offers little or no customer service support and there can be no enforcement of a court order targeted at freezing such assets. The reasons for this roadblock are straightforward. A decentralised exchange is an unregulated peer-to-peer marketplace to store, buy and trade crypto assets through a self-executing mechanism called a smart contract.

The absence of a custodian in a DEX means that there is no KYC policy and no AML law to govern it.

The peculiar nature of a decentralised exchange makes the forensic investigation and disclosure of crypto assets a bit challenging for investigators. And in most cases, they are forced to go by such findings that establish the ownership of the crypto wallets holding the assets and the value of the assets at the material time to assist the court in determining awarding a specific percentage to be paid to an entitled spouse in divorce financial settlement.

Conclusion

The disclosure of marital or non-marital assets in divorce proceedings is not a new legal concept. What is basically new is the field of crypto assets disclosure which relates to how the courts, divorce attorneys and forensic investigators play a role in determining the discovery and distribution of crypto assets between divorcing spouses. Over the years, there has been a growing number of crypto-related cases in family law, the most recent of which is that of the divorcing New York couple that shook the crypto community to its very foundation.

As countries around the world are beginning to realise how blockchain technology can upend the very fabric of society, crypto assets, which are held by millions of people across the world, are set to become an interesting aspect of family law to explore. At long last, each country is likely to define it own laws regarding the disclosure of crypto assets in divorce proceedings in a bid to do adequate justice to asset distribution in divorce financial settlement.