Cryptocurrency and Divorce: what you need to know

Cryptocurrency (crypto) is a term you’ve probably heard more and more in the last few years but perhaps you are not totally clear as to what it means, or what the implications are if this asset arises in divorce proceedings.

Increasingly this alternate form of asset is becoming a popular investment opportunity. There is a significant knowledge gap as to what it is and how it needs to be treated in divorce. It’s important this asset and the technology around it are understood to ensure it is handled properly.

Simply put, cryptocurrency is a digital currency, created using encryption and algorithms. Bitcoin, Ethereum, and Dogecoin are the most popular, but there are over a thousand different types. For the benefit of this article, the most important thing to know is that cryptocurrencies are decentralized and self-governed using smart contracts. This means that banks are not involved in the transactions.

To fairly divide crypto between two parties in a divorce, you’d need to accurately value it. This in itself is a significant first hurdle as determining the value of the crypto is very complex, for two main reasons. Firstly, the price of many cryptocurrencies is incredibly volatile; it’s not uncommon for valuations to move 20% (up or down) in a day. Secondly, there are two ways in which you can hold crypto – using a transparent regulated exchange like Coinbase, where trading is registered and records kept, or a decentralised, peer to peer exchange. With the latter, an individual can amass large sums of money, without anyone, and specifically within the context of divorce, a spouse, knowing. To add another layer of complexity, there are now anonymous cryptocurrencies, which are even more difficult to track!

Additional complexity arises with people who have been involved with crypto for many years and mined the cryptocurrency themselves on their home computer, as there will be no record of where it came from. This means it’s difficult to ascertain if someone is holding crypto and how much of it they are actually holding.

As you can imagine this poses a lot a difficulty when it comes to disclosure and the negotiation of a financial settlement. How can you fairly divide cryptocurrency between the divorce parties when it’s so difficult to value it or even find it?

In one recently reported case a husband had concealed the value of his cryptocurrency during the proceedings, and although the wife’s solicitor found out about this before the proceedings were finalised, a lack of knowledge in terms of attributing value meant that wife did not receive a share.

By signing the statement of truth when making financial disclosure, the parties are agreeing that this is a true and accurate disclosure of their assets. Therefore, if the actual value of a party’s asset is hidden (deliberately or accidentally), they are in breach of financial disclosure, which can lead to punitive orders being made against them and costs orders. However, this assumes that there is an awareness that crypto exists. Awareness is therefore crucial – knowing what you jointly own or have invested in, making sure you know when and what investments have been made. Knowledge really is key.

Valuation is also a real issue. As proceedings progress the value of the cryptocurrency at the end of the proceedings is likely to be very different from the initial value. This means valuation must be kept under review constantly and certainly be updated before any settlement or final court hearing.

Finally self-education – crypto is unlikely to go away and we need to learn more about it. Finding out how crypto works, how it is held, and how it can be used means that you are going to be more prepared to deal with this asset on separation. It is a unique and mercurial asset – but one that can be of significant value and therefore cannot be ignored.

Here at Hawkins Family Law, we can help you with any aspect of your financial matters, including cryptocurrency. If you are unsure about how to divide your assets in a divorce financial settlement or are concerned about how assets will be split, it is best to speak to a specialist divorce lawyer who can help you.

Our team of divorce specialists – in London, Milton Keynes, Bicester and Watford – can advise and guide you from the moment we start working with you.