At Silk Family Law, we are starting to see cryptocurrency assets arising more frequently as a consideration in divorce and financial proceedings.

With Bitcoin increasingly in the mainstream, people are now more aware of, and willing to invest in, cryptocurrency. As global interest rates remain low, crypto investments are being turned to as an alternative investment vehicle for many. Only last month, Elon Musk announced that Tesla had bought over £1bn in Bitcoin and may soon accept payments via cryptocurrency. Our role as family lawyers is not to give financial advice, but we do need to be alive to what assets are relevant in the cases we deal with.

In this blog, I wanted to share some of the common questions and themes that are cropping up in this interesting new area of divorce finances.

What is cryptocurrency?

Many of you will be familiar with ‘Bitcoin’ – the most common example of a cryptocurrency. Cryptocurrency is a digital currency that can be used to buy goods and services – yes, you can now top up your Apple Pay wallet and buy a cup of coffee with crypto! Cryptocurrency “coins” can also be traded online, like any other type of investment.

Should cryptocurrency be part of my divorce settlement?

In a divorce scenario, financial disclosure is provided on a document known as a ‘Form E’. This details a spouse’s financial circumstances with supporting documents. As a digital asset, cryptocurrency should now be considered alongside other assets in divorce proceedings.

In recent years, there has been debate in the commercial courts over whether cryptocurrency is classed as “property” in law. The overwhelming conclusion has been that it is property and is therefore subject to ownership and regulation the same as cash, shares, a pension or a house.

In divorce proceedings, it therefore constitutes an asset that the Family Court can make orders against. HMRC also considers cryptocurrency to be a taxable asset, so there are potential implications arising in respect of realising the investment as part of any financial settlement, such as capital gains tax.

Who controls cryptocurrency assets?

There is a duty on spouses to provide full and frank disclosure of all assets in divorce and financial proceedings. This requires any cryptocurrency to be disclosed, as it can potentially be divided, transferred, or sold by the Family Court as part of a financial order.

However, as a purely digital asset based on a virtual network, cryptocurrency exists outside of the control of governments and central authorities. One of its attractions for some investors may be that it can be harder to trace and prove which can add to the complexity of the disclosure process.

Control of a crypto asset lies with anyone in possession of the private key. Rather like a hard drive, this key acts as a security pass that enables access to information about the assets held.

How do I know if my ex is hiding cryptocurrency assets?

One of the challenges with cryptocurrency is that it can quickly change hands and fluctuate in value. The currency has no physical presence or central register of ownership, so it is important to understand what they are and the amount which is held.

In cases where there is evidence that a spouse may be dissipating or transferring crypto currency to hide assets, it may be possible to obtain an injunction from the Court to freeze their assets. Court orders can be issued that cover not only the alleged owner of the asset, but also on cryptocurrency exchanges on which the assets could be traded.

Where it is not possible to trace an asset, but there is enough evidence to convince the Court of their existence, there is the potential for it to be “added back” into the settlement. This may result in the spouse who has allegedly dissipated the assets receiving a smaller proportion of the overall matrimonial pot. The Court could also offset one spouse’s share in the cryptocurrency against other matrimonial assets.

How can cryptocurrency assets be traced?

Whilst we cannot provide financial advice, as family lawyers we can help and if necessary, engage a forensic expert or apply to the Court for orders to establish the true picture.

In cases where cryptocurrency has arisen as a consideration during divorce finances cases, we have been able to help our clients identify and value crypto assets working in partnership with our extended network of experts in areas like forensic accountancy and digital currencies.

This process may involve detailed analysis of bank statements and financial transactions, to identify transactions made to organisations or banks that deal in cryptocurrency. Entries linked to a cryptocurrency exchange (used for trading coins) or a cryptocurrency ATM (which converts money into cryptocurrency) can also be tracked.

Knowing what to look for, where to look and what questions to ask are key to getting to the bottom of these types of cases.

The future for digital currency and family law

I believe digital currency handling is going to become the norm moving forward in how we deal with money. I’ll be keeping a keen eye on how this plays out in family law and divorce cases and will publish any updates here on the Silk Family Law blog.

If you would like to understand how your cryptocurrency assets and investments may affect your divorce or family law case, or you have concerns about hidden assets, please feel free to contact us.

This article was originally posted on the Silk Family Law blog 12 March 2021, now part of Irwin Mitchell.