On behalf of The Marks Law Firm, L.L.C. posted in Divorce, Property Division, and Bitcoin on Wednesday, June 4, 2014
Unfortunately, we see all too often, despite the value of the marital estate, spouses trying to conceal assets during divorce. Usually, one spouse has stocks or a savings account the spouse does not disclose and of which the other spouse is unaware. Sometimes, with self-employed spouses, marital assets get funneled through the work accounts and become quite hard to detect and unravel.
Now, according to a recent article in the Daily Mail, spouses contemplating divorce have taken to using Bitcoin to conceal large amounts of marital assets.
What is Bitcoin? Good question…one not easy to answer. Essentially, Bitcoin is an anonymous currency exchange that works through a peer-to-peer network like cyber pirates employ to share copyrighted files. However, Bitcoin is a cryptocurrency, which means all transactions are encrypted in multiple levels and no transaction can be traced to one individual because of the form of the encryption software. Only a Bitcoin client with his or her encryption key can unlock funds and a record of transactions. A person uses any type of account to convert funds into Bitcoin, with one Bitcoin equal to approximately $500 (the rate varies with the exchange value). A person can cleverly transfer (some might say launder) funds from a bank account leaving no paper trail or suspicion – money that appears to go out for legitimate purchases actually go into Bitcoin, and once converted to Bitcoin become untraceable to all but the encryption key holder.
How could a spouse become alerted to the use of Bitcoin? Well, as the old saying goes, start by following the money. Any suspicious or unusual withdrawals from a legitimate account could be the basis of a laundered transaction. In order to convert cash to Bitcoin, the cash must exist in an account somewhere. Other clues may simply be a gross understatement of perceived wealth – in England, men worth millions have claimed to be near penniless in divorce court, giving rise to a real suspicion of improperly concealing marital assets. Once suspicion is aroused, further discovery requests could focus on Bitcoin accounts; however, if a spouse lies, how will the other spouse discover the Bitcoin? A subpoena for a computer drive could possibly yield an IP trail, but the drive could also be wiped in advance.
Is Bitcoin legal? At the moment, yes. Congress is considering various legislation that would regulate or ban Bitcoin currency, both of which may be ineffectual – one cannot regulate that which cannot be traced, and since Bitcoin functions like a black market already, a ban seems like a paper tiger.
Bitcoin signals only the beginning of using advanced digital technology to deceive and deprive a spouse of rightful marital assets. The best way to protect oneself against any type of this mischief is to keep a close tab on all marital finances and watch for any suspicious transactions, purchases or withdrawals. It seems that in the digital age, high asset divorce may require an attorney with several computer forensic experts trained to trace hidden funds.
If you have questions about Bitcoin and concealing assets during divorce, contact our St. Louis family law attorneys – we can help.