What does Bitcoin mean for divorce law?

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Here’s a little riddle for you.

What do aliens, the Holy Grail and the Loch Ness monster all have in common?

One of the admittedly many possible answers is that many people believe they all exist, but despite the search for each of them forming the life’s work of scores of people down the ages, no one has yet managed to prove any of them are actually real.

So how do we go about finding something we’re not even sure is there? Oddly enough, it’s a question that’s beginning to pique the interest of the UK’s divorce lawyers and our courts – except in this case, it’s not extra-terrestrial life, religious artefacts or plesiosaurs that we’re concerned with.

In the last week, there has been much publicity around divorces where investments in Bitcoin make up part of a couple’s financial assets, with one high profile case revolving around a husband’s £80,000 gamble on the virtual currency in November 2016 which turned into a £1m portfolio 13 months later, before falling to its current value of £600,000.

Bitcoin, and its altcoin impersonators, have become pretty trendy over the last couple of years. Invented by developer Sashoti Nakamoto (a pseudonym) as an encrypted electronic currency free from the control of government and banks, its rapid recent growth in value has made it a highly attractive investment option for those who, like the husband in the case above, have the cash to gamble. 

But it also poses interesting questions for UK law as it applies to divorce.

First, one of the fundamental principles of Bitcoin’s development was that people could invest without revealing their identity. Thanks to the widespread introduction in most of the developed world of legislation designed to tackle money laundering, it’s now virtually impossible to invest anonymously in conventional currencies. 

Second, because the only real ‘evidence’ of the cryptocurrency is a heavily encrypted line of computer code buried deep in cyberspace, it’s fiendishly hard to track.

And third, such is the erratic fluctuation in the value of cryptocurrency, what mechanism might divorce lawyers or courts use to measure, to the satisfaction of all concerned, the worth of any given investment, when it’s prone to losing 40% of its value in just eight weeks?

So, the question that now needs to be answered is how a divorce settlement reflects the true status of an individual’s financial affairs when the people involved in the process have no way of knowing if an investment does, or doesn’t, exist?

It’s not difficult to see why the UK and the EU want to introduce new legislation to regulate cryptocurrency to bring it into line with current anti-money-laundering legislation. That legislation is expected to arrive, in one form or another, by the end of this year.

However, if a quarter of a century of living with the internet has taught us anything, it’s that genies, once released, are very hard to get back into their bottles. Like a hydra, Governments may slay Bitcoin and its cousins, but as sure as eggs are eggs, another head will appear soon enough.

Not only that, but technology does evolution just as well as, and much faster than, nature. So, you can be sure that whatever replaces Bitcoin in the digital undergrowth will be stronger and harder to crack.

As divorce solicitors, part of our job is to reach a financial settlement on behalf of our client that is fair and appropriate. This is already often complex, even when the breadcrumbs are more obvious and notionally easier to follow.

In the case of the £600,000 Bitcoin portfolio, the existence of the investment isn’t in question. Existing law requires both parties in a divorce to disclose their assets. But specific legislative changes relating to divorce and cryptocurrency will be needed to ensure transparency around those investments and, perhaps more importantly, an acceptable mechanism by which they are valued for settlement purposes.

Daniel Russell is the Managing Director of London-based Carlsons Solicitors, a well-established practice specialising in Divorce and Family Law, Dispute Resolution, Commercial & Residential Property matters, Settlement Agreements, Wills, Probate and Lasting Powers of Attorney.