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22nd September, 2020

Divorce in the age of Cryptocurrency

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Whatever your view of the financial risk, cryptocurrencies like Bitcoin are increasingly part of the make-up of matrimonial assets.

In family law, concerns lie around disclosure and how to practically share such a so-called ‘digital asset’. Is the law able to keep up with fast-evolving asset structures?

Bitcoin (or its equivalents) are considered ‘property’ within the meaning of the law and thus relevant assets when considering financial claims on divorce.

Cryptocurrencies are unregulated and offer anonymity. These may present difficulties on divorce when trying fairly to divide the matrimonial resources.

There is an ongoing duty in family proceedings of full and frank disclosure. Unless the cryptocurrency is properly disclosed the other party may struggle to establish the investment’s existence, let alone its value. There is no public record of the investment unlike with land or shares.

The initial purchase can usually be easily proven if it was made from a bank account. However, following the funds beyond that initial investment may be difficult without the investor’s passwords. Courts can order specific disclosure of passwords under threat of penal sanction. Specialist investigators can be engaged too and so with effort (but cost) the investment is usually traceable.

Given the price volatility, expert valuations should be obtained to establish its fair value. The court will then consider how best to share it taking account of its erratic, volatile nature. Where there are sufficient assets to do so, the court could ‘offset’ one party’s share against another matrimonial asset of equivalent value.

The ‘offsetting’ approach is useful but it does raise the prospect of ‘risk inequality’. If the value climbs after divorce, one party could profit hugely, while the other is stuck with a fixed sum or another static asset class. There will usually be ‘no second bite of the cherry’ regardless of the change in values post-settlement. The court has the power to order the transfer of cryptocurrency, so the risk can be shared through such an order if there is an appetite to do so.

Although a thoroughly modern phenomena, the courts have already found ways of dealing with cryptocurrency both procedurally and as part of its distributive powers.

Richard Barge

Family

Head of Team and Partner
Email: [email protected]
Tel: 01244 405 443



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