The newest high-tech way to hide assets in a divorce is by using Bitcoin, a digital currency that doesn't depend on banks or governments, and allows its holders to remain anonymous. I haven't seen people using Bitcoins to conceal assets yet in my divorce financial planning practice, but I fear I will soon.
States such as California require each spouse filing for divorce to submit income/expense and asset/liability disclosures to the court. These forms typically ask for a listing of stocks, bonds, cash, vehicles, checking accounts, real estate, household items, jewelry and other assets. Bitcoins should be listed as "other assets." However, it would be possible to gradually convert cash assets into Bitcoins before a divorce filing and not disclose these to the court. Legally, that would be a big no-no, as you're required to attest that the disclosure you are signing is true. But if someone is hiding assets, they've already decided to risk dodging the law, and Bitcoins are well-designed to accommodate that end.
Follow the Money
To protect yourself from being Bitcoined in divorce, you'd have to follow the money trail. Conversions of "real" assets into digital Bitcoin would leave clues. There would be transfers from bank accounts you could track. Once the transfers were made, however, it would be difficult -- especially if the Bitcoins were held outside of the United States -- to prove ownership. Your first step would be to show that marital property was converted into Bitcoins and hope a court could compel your spouse to reveal their true value.
Things become more difficult if your spouse has a business, and was compensated in Bitcoins without any invoice. In that case, there would be no record of the transaction -- either on a profit and loss report from your husband's company or in bank records. To uncover this will take effort and craftiness.
Accepting Bitcoin is not illegal, but failing to disclose Bitcoin assets in a divorce is. The trick is proving that they exist. Arrange for a few friends run a few transactions through the company and pay using Bitcoins. Make detailed notes of what was purchased, the date/time and amount. Keep all receipts. During the divorce, request copies of business financials and see if all of the purchases your friends made show up. If they don't, you have strong evidence that there are assets that aren't being accounted for properly. Better yet for you, there could be a case for income tax evasion against your spouse. Knowing that could give you some handy leverage in your divorce negotiations.
Not that we're looking to send anyone to jail, of course: The goal is to ensure a level playing field where there can be a fair and equitable division of all assets -– and to make sure all the assets are disclosed.
Robert Pagliarini is a best-selling author and wealth manager who focuses on sudden wealth recipients. Connect with him on Twitter at @rpagliarini.