We’re divorcing — has my husband got hidden bitcoins?
Over the past year or so I have overheard my husband telling his friends about how well his bitcoin investments have done. We are now getting divorced and I realise I have no idea how much his cryptocurrency holdings are worth or even how to find that out.
When it comes to disclosing our assets and negotiating a financial settlement I have no evidence at all that it actually exists. Is there anything I can do other than hope that he is honest about it? What will happen if he claims he has nothing in bitcoin?
Harriet Errington, partner at law firm Boodle Hatfield, says this is an increasingly common dilemma of the digital age.
The anonymous nature of cryptocurrencies makes them notoriously difficult to deal with in the context of divorce proceedings, despite the wide-ranging powers of the family courts in England and Wales.
Cryptocurrencies are held in digital wallets which create “addresses” for transactions, none of which are logged to individuals. If your spouse refuses to declare his cryptocurrency holdings, it is very difficult to ascertain these holdings as there is no central authority through which one can put names to assets.
The key is to identify the point of entry into or exit out of cryptocurrencies. The blockchain, a decentralised shared public ledger, records all bitcoin transactions, including the addresses it came from and went to. If you can find a transaction that includes a bitcoin address, or the digital wallet that can be linked to your spouse, then it may be possible to trace his transactions.
Analysing your spouse’s bank accounts is the best starting point. Bitcoin is typically purchased using fiat currency, so you should look for transactions with crypto-exchanges and trading apps or payment companies. Increasingly, non-financial companies accept bitcoin as payment and such physical asset purchases link the cryptocurrency to a name and an address.
Analysis of your spouse’s tax returns may provide evidence of cashing crypto holdings into “real” money as sales of bitcoin should be declared as a capital gain or loss.
A word of caution, however. You may not access your spouse’s computer or phone without authorisation. Doing so could get you into hot water with the family courts and potentially have criminal consequences.
Even if you cannot find documentary evidence that your spouse owns cryptocurrency holdings, if you can satisfy the court on the evidence available that he does — such as historic text messages referring to bitcoin — the court can draw inferences or make orders that other assets should be transferred to you in their stead.
The key is to make the non-disclosing party aware that it is not worth his while to hide cryptocurrency. The penalties imposed by the family court for non-disclosure can be severe and include imprisonment. Courts have the power to re-open divorce settlements years afterwards if non-disclosure can be proven; therefore if you find out five years down the line that your ex has made a big purchase from unknown funds, it may be possible to re-open a previous divorce settlement.
As cryptocurrencies become increasingly mainstream and these issues become more common, the harder it will be for them to remain anonymous. The wide-ranging powers of the English divorce courts, and the canny lawyers who work in them, are now proving more than a match for would-be wealth hoarders.
What tax reliefs are available for charitable giving?
Can I be more tax efficient through charitable donations? What are the tax reliefs available with charitable donations and the benefits of lifetime versus charitable giving?
Sue Wakefield, trust director at advisory firm Zedra, says donating to charity is extremely tax efficient, with lots of tax reliefs available in England and Wales.
The first is gift aid, which provides charities with an additional 25p for every £1 donated but also allows tax relief for higher and additional rate taxpayers gifting cash. Completion of a gift aid declaration proves you have paid enough tax to qualify for gift aid.
If you are a higher-rate taxpayer you can claim the difference between the rate you pay and the basic rate on your donation. Make the claim via your self-assessment tax return or by asking HM Revenue & Customs to amend your tax code. For example, if you are a higher-rate taxpayer and you donate £100 to charity, the charity claims gift aid to make your donation £125 and you can personally claim back £25.
To improve efficiency in reclaiming the tax, you can claim on donations you make in the current tax year in your self-assessment tax return instead of claiming for the previous year, which is the case for most other financial claims. If you don’t complete a self-assessment return ask HMRC for a P810 form.
Second, you can donate from your wages or your pension. If your employer or personal pension provider runs a “payroll giving” scheme, you can make this donation before tax is deducted.
The tax relief depends on the rate of tax you pay. To donate £100, you pay £80 if you’re a basic rate taxpayer; £60 if you’re a higher rate taxpayer and just £55 if you’re an additional rate taxpayer.
Third, there is capital gains tax (CGT) relief. In addition to cash, you can gift listed shares, land and property to charity. Normally, any disposal of shares standing at a gain would trigger a CGT liability, but this does not apply to charitable donations.
Additionally, there is income tax relief. You can pay less income tax by deducting the value of your donated listed shares, land or property from your total taxable income through your self-assessment form for the tax year in which you made the gift to charity.
You should keep records of donations to show that you’ve made the gift and that the charity has accepted it. Seek specialist advice where significant values are involved as HMRC has detailed requirements for eligibility and basis of valuation.
Finally, inheritance tax relief. Gifts made directly to UK charities in your will are not subject to inheritance tax, saving 40 per cent in tax if inheritance tax is payable.
A reduced rate of inheritance tax also applies where 10 per cent or more of your taxable estate is left to charity. This means a rate of 36 per cent will be applied to the balance of your estate not passing to charity.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
Our next question
I have a son who has Asperger’s syndrome and ADHD. How can I protect his inheritance, for example his home, from being taken or sold if a future relationship turns sour? He is a generous, kind individual and could easily be taken advantage of.
Our other two children accept that the house is going to be left to him and as a result any other assets will be divided pro rata. While I understand that some things are embedded in the law to provide for spouses I need to know what can be done to protect his interests.
Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to firstname.lastname@example.org.