“Asset protection” has long been a strategy in divorce cases across the United States. The term “asset protection” refers to the use of a legal strategy in order to hide or shield assets from the Courts. Bitcoins, the relatively new internet currency, will most likely become the next frontier of asset protection.
In divorce cases, asset protection can take many forms. Sophisticated asset protection techniques involve transferring money to an overseas account, the formation of legal entities (trusts, corporations, limited liability companies) and other methods.
The most unsophisticated and simple form of asset protection, and perhaps the most common in divorce cases, is simply bitcoin mixer holding money in the form of cash (i.e., inside a home safe or in a bank safety deposit box). In this way, a person that is in the process of divorce believes that he can “protect” the cash from the divorce process. The divorcing spouse might keep the existence of the cash secret from his spouse, divorce lawyer and Court, in order to avoid being ordered to share the cash with his spouse. This strategy may or may not be successful, but it is surely not legal because it requires that the person misrepresent his assets to his spouse and to the Court.
A sophisticated divorce lawyer will know how to uncover hidden assets of this kind through the examination of financial records and other means of legal discovery. Bitcoin, however, has the potential to replace the hiding of cash as the most common form of asset protection in divorce cases. Given the structure of the bitcoin system and most divorce lawyers ignorance regarding bitcoins, it could become a significantly more successful method than hiding cash.
Bitcoin is the digital currency that was created in 2009 by the anonymous developer known the by pseudonym as Satoshi Nakamoto. It is a currency that exists only in digital form. All bitcoins and transactions are “registered” on the bitcoin block chain that is updated by bitcoin users rather than a centralized authority. The transactions, however, do not include names but rather the digital identification of each bitcoin. Bitcoin owners keep their bitcoins in a bitcoin wallet. The wallet is not necessarily a physical wallet, but rather various methods for storing the digital identification of the bitcoin. The wallet might be kept on a computer, the server of a bitcoin wallet website, or even a piece of paper.
While is theoretically possible to trace the transfer of a bitcoin by examining the block chain, one will only discover the public identification key of the bitcoin rather than the name of the owner. If the wallet is kept on a person’s computer or on a website (where a party to a divorce registered his name) it is possible to discovery the existence of the bitcoins. However, wallets do not have to be associated with a name. Furthermore, if a person uses a “brainwallet” tracing a bitcoin to a specific person becomes almost impossible through any conventional method. A brainwallet is the use of a memorized passphrase in order to store a bitcoin.