Warring couples battle over bitcoin
Cryptocurrency a new weapon in divorce cases
Divorces are messy, and cryptocurrencies are helping to make them a lot more so. Virtual currencies such as bitcoin and ethereum are a new challenge for lawyers, plagued with volatility and secrecy that is extending the already painful process of dividing a couple’s assets.
The rising popularity of bitcoin — and for a while at least, its rising value — means more separations involve the currency, which is difficult to trace and hard to value.
The anonymous nature of cryptocurrencies potentially makes them a safe haven for spouses wishing to hide money from a warring partner.
Bitcoin was created in 2009, so lawyers and judges are only beginning to witness the first instances of crypto-related splits.
“Often in a divorce, one spouse is looking for a pot of gold that doesn’t exist. But with cryptocurrencies, it’s possible the pot does exist,” said Toby Yerburgh, head of family law at Collyer Bristow in London.
Yerburgh said he started to get cases where partners were concerned about hidden bitcoin since the digital currency became better known last year.
Lawyers in the US and Britain are trying to get their heads around bitcoin as more clients ask what it means for their divorce.
“I’m getting calls from lawyers all over the US trying to get familiar with t he l anguage around cryptocurrencies,” said California’s Peter Walzer, president-elect of the American Academy of Matrimonial Lawyers.
If one side decides not to disclose or provide evidence of their holdings, the divorce process becomes more expensive and time-consuming, and could result in the partner failing to get a fair share of assets.
“It’s creating another layer of distrust that we haven’t had to deal with before,” said Jo Carr-West, a partner at London-based Hunters.
Cryptocurrencies traded using an online exchange or bought with funds from a bank account can be easier to t race and value. But if a cryptocurrency is moved offline — for example, if someone transfers their digital wallet onto a USB — then it becomes more difficult.
In this case, a digital forensics expert can be brought in to search through the spouse’s email to determine what transactions have taken place. This is a slow process that can cost thousands — sometimes more than the currency itself is worth.
“Cryptocurrencies make things complex if you have a spouse who’s determined to hold on to their money, same as if they were hiding assets overseas,” said Victoria Clarke, a solicitor at Stowe Family Law in the UK.
But as lawyers learn more about bitcoin, they’re beginning to ask the right questions to find it.
“It’s now a standard part of our discovery process,” said Jonathan Fields, a partner at Fields and Dennis in Wellesley, Massachusetts. “I will make sure I’ve got the right language and questions to ensure a partner discloses their cryptocurrencies.”
Cryptocurrencies also bring the problem of valuation. In December, bitcoin hit a high of nearly US$20,000, and less than two months later, had dropped to around US$6000. This volatility makes it difficult to determine value as the price can fluctuate wildly within the course of a divorce.
Although a partner could have built up a substantial crypto fortune when filing for divorce, it may have diminished by the time of settlement.
One case handled by the British law firm Royds Withy King involves an original investment of £80,000 made by a spouse in November 2016. By December 2017, it had jumped to £1 million, but was later worth £600,000.
Such price shifts have led lawyers to suggest that clients not worry about fixing a valuation. The best course, they say, may be to ask to split the bitcoin itself and take the chance of selling on an exchange.