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Share Article: Cryptocurrency in Divorce – 3 Key Points to Bear in Mind

Not everyone is sold on the idea of investing in cryptocurrency. It may seem intimidating, inaccessible and extremely risky. That said, it is an area that is becoming increasingly difficult to overlook, not only because the value of the market is now in the trillions, but also in the context of divorce.

What happens if you are divorcing someone who you believe holds cryptocurrency? Are you entitled to claim a portion of those assets, and, if so, how?

What is Cryptocurrency?
Cryptocurrency is a digital currency that has no central authority responsible for it being issued or regulated. Transactions of cryptocurrency are recorded and encrypted on a decentralised peer to peer system called blockchain. More likely than not, if your partner holds cryptocurrency, they will do so on a digital exchange, known as a digital wallet, such as Kraken or Coinbase Exchange.

Importantly, for the purposes of divorce, cryptocurrency is treated as an intangible asset.

Some points to bear in mind

1. Financial Disclosure
When sorting out the matrimonial finances, you will reach a stage where you and your partner are required to exchange financial disclosure. This is done so that each party can fully understand the extent of the other side’s financial position. The exchange of disclosure is provided in a Financial Statement (known as a Form E), with supporting documentation, such as bank statements, payslips, valuations/appraisals, etc.

There is an ongoing duty to provide full and frank disclosure when sorting out the matrimonial finances, which means that there is an obligation to disclose all assets in which you have a financial interest, including holdings of cryptocurrency. Therefore, if you notice that your partner has not disclosed their cryptoassets, you should draw this to their attention and to the attention of the Court if there are ongoing proceedings. If your partner is still not forthcoming about his/her cryptoassets, the Court may make an order requiring disclosure, either from them or from the third-party institution in which your partner is believed to have purchased his/her cryptoassets.

If you believe that your partner’s holding could be quite substantial, or if he/she has revealed this to be the case, you may want to consider employing a digital forensic expert, who will be able to pose technical questions designed to correctly trace the cryptoassets. However, it would be advisable to undertake your own cost benefit analysis beforehand when considering the instruction of an expert. If the holding does not appear to be significant, then it may not be worth incurring the potentially substantial costs of instructing such an expert. However, the value of the cryptoassets can be misleading and so you should be confident in your assessment of this before deciding whether it is in your best interests to instruct an expert to explore the asset further.

2. Preserving the Asset
If you are worried that your partner will transfer their cryptocurrency out of reach, you must address this as quickly as possible, as it may be possible to obtain an order from the Court to prevent this from happening. Although it may be more difficult to freeze digital assets, there is case law to show that it is possible, as in Robertson v Persons Unknown (2019, unreported), the court made an asset preservation order resulting in the recovery of more than £1M of stolen Bitcoin. There are, however, costs implications in making such applications in that the application could be very expensive to make and that if your application is unsuccessful, the Court may order that you are to pay the other parties’ costs. It is therefore advisable to discuss the merits and risks of making an application with a legal professional beforehand.

3. Value
Cryptocurrency can change its value much more rapidly than traditional assets, which is one of the reasons it is known for being a high-risk investment. This volatility also makes cryptocurrency a more challenging asset for the Court and parties to assess in determining an appropriate financial settlement.

One way to combat this, therefore, is to deal with it separately from other more stable assets so as not to use it in any potential offsetting and to divide the asset on a percentage rather than value-basis.

If you believe you may face issues concerning cryptocurrency in your divorce, please get in touch with our specialist Family Finance Team on 020 3820 2681.

This blog post was written by Sara Hyder, previously a Trainee Solicitor in our Family Finance team and currently a Solicitor in our Litigation team.

Whatever your personal circumstances the above is only a guide and we would advise you to contact us to obtain definitive advice as you will appreciate that each person’s circumstances are unique to them.

 

 

 

 

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