As mainstream adoption grows, the application of Bitcoin and other cryptocurrencies are becoming more and more abundant in our daily lives. From paying off taxes to making day-to-day purchases, Bitcoin is becoming assimilated into all aspects of the modern financial world. In fact, with cryptocurrencies being accepted on such a widespread level, some crypto-enthusiasts are beginning to appeal for laws that protect their cyber tender in the case of a divorce.
We all know that cryptocurrencies have always been a go-to medium for criminal activities like money laundering because of its anonymity. However, the anonymity that these digital currencies provide could also be used to hide assets that would otherwise be taken into consideration in the case of a divorce. This was exactly what some law firms based in the U.K. have been encountering in the past year.
As a result, it might become mandatory for couples to report their cryptocurrency holdings that they have stashed away in their online wallet the same way they declare their regular assets. In a marriage, if both partners have never signed a prenuptial – an agreement to clarify how properties will be divided in the case a divorce or a partner’s death – assets might fall in a legal gray area in which both parties can contest for their ownership. This happens because of transmutation, which is the situation where separate assets are commingled with marital assets.
Now, cryptocurrencies are being contested in this sense as well.
Royds Withy King, a private solicitor firm in the U.K. is currently dealing with a couple who are litigating over £600,000 ($830,000) worth of cryptocurrencies. The husband in this lawsuit had invested nearly £80,000 in cryptocurrencies prior to its meteoric increase in late 2017.
In an interview with BBC, Vandana Chitroda, a partner at the London-based law firm, predicts that there will be more cases like this in the future and that this is merely the start.
“These are the first cases we have seen, and we expect to see many more. There will also be those divorces where a spouse may not have disclosed such assets, leaving a traceability nightmare.”
It is, however, rather difficult to prove a partner’s ownership of these virtual assets. According to Jacqueline Fitzgerald, a partner at Wilsons law firm, “proving that one spouse has a substantial holding in a cryptocurrency and adding that to the marital assets can be a big problem.”
The biggest concern here is the lack of a central authority when it comes to cryptocurrency regulation. This makes it nearly impossible to freeze these virtual assets in the case of a split, which makes it easy for spouses to convert their liquid assets to cryptocurrencies and hide them from their divorced partners.
Furthermore, if spouses are asked to reveal their crypto holdings in the case of a divorce, there is the volatility aspect of cryptocurrencies that has to be taken into account. According to Chitroda, a regular divorce process can take up to eight months on average to finalize, so numerous valuations of the digital assets will be needed for the court to be given accurate information.