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

June 2, 2014 2:15 pm

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

By Jane Croft

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 recognise 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.

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.

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.

“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.

Last November, the District Court for the Eastern District of California issued a discovery order in a trademark infringement case involving Entrepreneur Media Inc. 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.

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.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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