Penalties for Non-Disclosure of Cryptocurrency During Divorce Proceedings

Any and all cryptocurrency assets owned by an individual should always be declared when going through divorce, just as with other assets. Not declaring such assets would be considered illegal in almost all jurisdictions. The penalties can vary widely based on the circumstance and jurisdiction, but in some cases non-disclosure can even result in criminal charges time.

Jurisdiction

Consequences for non-disclosure can vary widely based on residence and jurisdiction. In Canada, divorce law is dealt with at the provincial level. While in the United States, it is dealt with at the state level. Case law in the event of non-disclosed cryptocurrency assets is extremely sparse. penalties and consideration are not doubt going to differ between various jurisdictions, hence the importance of consulting a legal counsel should you find yourself in this situation.

Challenges with Non-Disclosed Assets

Non-disclosure of assets is a major problem in divorce proceedings and is typically quite painful to deal with having notably been called the cancer of matrimonial litigation. While fighting over money and assets is common in most divorce cases, non-disclosure of assets during divorce is fortunately fairly rare, making things a lot less difficult than they otherwise would be. The reason non-disclosure is rare is due to a confluence of factors:

  • Severe penalties for non-disclosure including awarding all other family assets to the spouse and/or jail time (described in more detail below).
  • Likelihood of “getting away with it” without consequences. It is very difficult to pull off successfully due to traceability and regulatory requirements within traditional financial and banking systems. This in turn leads people to try to use other asset classes which are less traceable.
  • Many people feel a moral obligation to help their spouse out in accordance with law and don’t need to be threatened with penalties in order to comply. In some cases however, any moral obligations an individual has can be overridden by extreme bitterness they now have towards their former spouse, hence the importance of factors no.1 and 2.
The Cryptocurrency Problem

The use of cryptocurrency as a means of hiding assets can make it far more likely the individual is able to “get away with it”. As I’ve argued before, cryptocurrency is ideal asset class to use given its pseudoanonymity and its existence outside traditional financial system. This in turn changes the risk/reward scenario to prevent non-disclosure in cases where moral obligations aren’t enough to discourage someone from not disclosing assets.

Possible Penalties

Penalties for non-disclosure of cryptocurrency assets presumably would be similar to penalties for non-disclosure of other asset classes. Such penalties will vary based on jurisdiction, circumstance, and value of assets and could include:

Implications

Once non-disclosure has been established, it demonstrates bad faith on the part of the spouse. Then the onus is now on the spouse to satisfy parties that they have subsequently fully disclosed all assets. This can be very difficult to prove given the nature of cryptocurrencies. This is significant since even if not all cryptocurrency assets owned by the individual can be tracked down in their entirety, the reputation of the spouse has been destroyed likely leading to a less favourable settlement for the spouse.

Burden of Proof

Criminal charges resulting that result in jail time as a result of non-disclosed assets are rare in cases not involving cryptocurrency due to the high burden of proof required. In cases involving cryptocurrency, it’s likely to be even rarer. This is because of the difficulty proving ownership of cryptocurrency assets. While it’s not difficult for a digital forensics expert to find very strong evidence demonstrating ownership, in many cases that evidence will not support proof beyond a reasonable doubt.

In all likelihood, the few cases where criminal charges will occur will likely not be the result of non-disclosed cryptocurrency assets. Rather, it is likely due to be the result of things the individual claims in court e.g. “I have never sent any Canadian dollar wire transfers to any cryptocurrency exchanges”.

Summary

Possible penalties for having undeclared cryptocurrency assets during divorce can vary widely based on jurisdiction, intent, and value among other factors. Electing to not truthfully disclose all cryptocurrency assets during a divorce is a horrible idea. Furthermore, such attempts are likely to prove unsuccessful given the underlying transparency and traceability of most cryptocurrencies such as Bitcoin.

Note: Nothing in this article is to be construed as legal, financial, or tax advice.

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