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Bitcoin could be used to hide assets in divorces, warn lawyers

Bitcoin, the electronic currency, could be used by divorcing spouses to hide assets from estranged partners, lawyers have said, as court battles shift their focus to the disclosure of assets.

Divorce settlements in England are seen as particularly generous to ex-wives, because judges recognize the equal contributions made by the breadwinner and the homemaker in a marriage, and divide the assets equally.

Moreover, courts are increasingly having to deal with legal battles brought by one side claiming the other has not made full disclosure of assets and has concealed wealth.

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Ayesha Vardag, a London divorce lawyer, has warned that more lawyers may start including digital currencies in financial disclosure orders if there is evidence they have been used.

"They can be used to run a parallel economy," she said. "People will go to immense lengths . . . as a spousal claim is more damaging than tax because it is half your wealth."

Already, a number of forums devoted to Bitcoin discussion have seen husbands exploring the option of using digital currencies, she said.

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Bitcoins provide relative anonymity to investors and, unlike bank accounts and share holdings, they are hard to link to an individual.

For this reason, the currency has become a mainstay of illicit transactions, such as through Silk Road, the now-closed online drugs and weapons marketplace.

Although traditional currency holdings – in US dollars or euros for example – might need to be declared as part of the asset disclosure process, parties could try to hide their wealth by converting it to Bitcoins.

Unscrupulous spouses could also transfer the currency quickly and almost anonymously between online wallets, hiding their wealth in the hands of friends, perhaps outside of the jurisdiction, to avoid discovery and enforcement.

Frank Arndt, head of international family law at Stowe Family Law, said that he expected Bitcoins could become an asset to be disclosed in divorce cases.

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"Husbands are becoming more and more creative in terms of what they do to reduce their wealth and the courts are struggling to catch up. It's just like when the internet started and it was difficult for courts to catch up," he said.

Steven Philippsohn, a fraud and asset recovery lawyer at PCB Litigation, said he had not seen any cases of people hiding their assets using digital currencies but believed that court orders of asset disclosure might soon include them. "Court orders in this country are very extensive and it's inevitable it will happen... orders for disclosure have incorporated new areas like Facebook and Twitter," he said.

Courts in California are beginning to issue search and discovery orders of assets that include digital currencies such as Bitcoin.

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Last November, the District Court for the Eastern District of California issued a discovery order in a trademark infringement case involving Entrepreneur Media. It ordered the disclosure of financial statements from the defendant including any use of digital banking services such as Bitcoin.

Ms Vardag said there was no reason a similar disclosure order could not be obtained from the English courts.

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Michelle Young was awarded a £20m lump sum last year after divorcing her husband Scot Young. Mr Young had claimed he was penniless and could not afford to pay anything. She alleged he was worth millions.

Mr Justice Moor noted that Mr Young was said to be hiding very considerable assets and found he had "misled the court as to his finances to a very significant extent" and failed to disclose assets.

The Supreme Court also ruled last year that Yasmin Prest, the former wife of Michael Prest, an oil trader who was worth £37.5m in 2011, could receive millions of pounds of property assets from three offshore companies, despite the fact they were set up as distinct legal entities by her former husband.