Cryptocurrency in Financial Remedy proceedings on divorce

Whilst cryptocurrencies have now existed for more than a decade, over that period they have becoming increasingly prevalent and popular. Family practitioners have had to quickly get to grips with these assets and their implications within divorce proceedings, as it is becoming increasingly common that divorces will now involve disputes concerning cryptocurrency. It is therefore essential to understand how these assets are controlled, traced and used.

What is cryptocurrency and how is it used?

Cryptocurrency is a digital currency which operates through an online network. It is essentially a digital asset that you can buy, sell or trade. Bitcoin and Ethereum are well known forms of cryptocurrency, though there are thousands which exist.

Trading accounts, such as Coinbase and Binance, are used to exchange and trade cryptocurrencies. Crypto assets are held in a crypto “wallet”, which essentially is the mechanism for the public and private key to be held.

Why is cryptocurrency relevant in divorce proceedings?

Cryptocurrency is an asset which can be considered as part of a financial settlement on divorce. Whilst it is not yet a main feature of financial settlements, such as a property or pension, it is becoming more prominent.

How do you know if your spouse/civil partner has cryptocurrency? How do you find it?

Some spouses are likely to take advantage of the anonymous nature of crypto assets to try to hide them during a divorce. Unlike a bank account, you are not obliged to have a name and address associated with a crypto wallet. The information needed to access a wallet is the public key (like an account number) and the private key (like a pin code). Public keys are listed in a public ledger of transactions.

During financial proceedings on divorce, parties have to provide financial disclosure of their assets and resources. This should include any cryptocurrency. If you suspect that your spouse owns crypto assets but is failing to disclose this, you should discuss this with your solicitor so that disclosure of bank account statements, trading accounts, wallets and public keys can be requested. Although they are digital assets, they can often be easy to trace, with the right information.

Should this information not be forthcoming, further steps can be considered to assist with tracing those assets, such as third party disclosure orders. It is not always proportionate to carry out this investigation, and your solicitor will advise you on this, and whether any specialist advice is required.

How do you quantify cryptocurrency?

The value of cryptocurrency is based on supply and demand. This makes them extremely volatile and difficult to value. The volatility of cryptocurrency is a new phenomenon in the family courts. It is entirely possible for somebody to end one day a millionaire and the next have lost their entire life savings following a crash in the crypto market, something that investors have been experiencing all too often. Valuation evidence and expert advice may be required when dealing with the quantification of crypto assets in family proceedings.

Updating disclosure should be provided throughout proceedings so the fluctuating value of these assets can be monitored. It may be necessary to seek directions from the court concerning the value of crypto assets, including the date upon which they will be valued for the purpose of any hearing.

What should I do if my spouse/civil partner is trying to hide or dispose of cryptocurrency?

It may be appropriate for an expert to be instructed to assist with the tracing of crypto assets. Advice should be taken as early as possible, in case tracing is required in order to assist with preventing the dissipation of such assets. In certain cases, it may be possible to obtain orders to seize information which might help identify or secure crypto assets, or to obtain a freezing order to prevent crypto assets being disposed of.

How can cryptocurrencies be dealt with in divorce settlements?

Your solicitor will help you consider how to treat crypto assets within a financial settlement on divorce. Cryptocurrency can be sold and the proceeds divided, or an individual can be ordered to transfer cryptocurrency into a wallet owned by their spouse. It is also possible to offset crypto assets against other assets, though the risks of doing so in light of the volatility of crypto assets must be fully understood. There may also be tax implications when realising these assets.

Advice should therefore be taken at the outset if cryptocurrency is likely to be a relevant feature in your divorce.

Glossary of Terms

Binance – an example of a crypto exchange platform where users can buy and sell crypto currency.

Bitcoin – a form of cryptocurrency.

Blockchain – a shared ledger of recorded transactions held simultaneously by several people on a computer network.

Coinbase – an example of a crypto exchange platform where users can buy and sell crypto currency.

Cryptocurrency – a digital form of currency that can be traded for goods, services or other currency. Transactions are verified using cryptography carried out by ordinary users, as opposed to a centralised bank or organisation.

Crypto Exchange Platform – a website or app (marketplace) where people can buy and sell crypto assets.

Cryptography – a mathematical method of keeping information secret and secure by scrambling it into code. The information can only be decrypted and transacted with the necessary keys.

Ethereum – a form of cryptocurrency, the second largest to Bitcoin.

Private key – the instrument used to transact cryptocurrency. The private key confers ownership and control over the crypto assets.

Public key – proof of a cryptocurrency transaction. You can see all transactions on a blockchain relating to a public key.

Wallet – used to send and receive cryptocurrencies. The wallet holds the keys required to transact. A wallet can be ‘hot’ (online) or ‘cold’ (offline).