In England and Wales, couples to divorce proceedings must disclose all of their property, even digital currencies like Bitcoin, in a full and open manner. According to Harriet Errington, Partner in the Family team of legal firm Boodle Hatfield, if one partner declines to report their digital currency holdings, there is no straightforward means to determine these holdings because there is no central body by which one can attach names to assets. The assets are stored in digital wallets that provide transaction addresses that are not tied to personal names.
‘For the matrimonial finance and private client lawyer, crypto-assets can form a major part of a client’s estate and we are seeing them with increasing frequency,’ stated Helen Brander, Barrister at Pump Court Chambers. ‘It is vital that we can identify, value and understand them.’
The holder’s entry point into digital currencies, that is, the first transaction when they are acquired, is frequently the beginning point for determining a spouse’s ownership. All Bitcoin transactions, such as which addresses they originated from and came to, are stored on the blockchain, a decentralized shared public database. It is feasible to track their activities through the blockchain record by locating a money transfer that contains a Bitcoin address or a digital wallet that may be traced to the partner.
Non-financial enterprises are increasingly supporting Bitcoin as payment for actual asset purchases, with the digital currency always being linked to a name and an address. Furthermore, digital currency owners are compelled to report their earnings on their tax filings.
If no formal documentation of a spouse’s bitcoin assets can be found, family courts can make conclusions based on prior text messages or emails showing that such assets exist. Even many years later, the courts might mandate that alternative assets be granted to the other spouse in their stead.
‘Cryptocurrencies are becoming increasingly mainstream and these issues are therefore becoming more common in the family courts’, noted Errington. ‘The more mainstream [they] become, the harder it will get for them to remain anonymous and avoid generating a digital paper trail.’