Despite its rise in popularity, cryptocurrency such as ‘Bitcoin’, ‘Ripple’ and ‘Ethereum’ still remain a mystery to many. Cryptocurrency has a reputation for keeping assets in the dark from partners, but we hope to shed some light on cryptocurrency in this blog.
Cryptocurrency is a digital or virtual currency and therefore is a financial asset. If a couple are divorcing, cryptocurrency information should be included in the financial disclosure and in the overall division of assets, but that is not as straightforward as it sounds.
Cryptocurrency relies on codes, account numbers, ledgers and passwords rather than a traditional banking system of I.D, debit cards, traceable bank accounts and statements. There is very little paper trail with cryptocurrency. This can be an issue when the court requires full and frank financial disclosure.
Cryptocurrency can be purchased on digital exchanges and held in a private digital wallet which has various codes that correlate to the amount of cryptocurrency held. What is important to note here is that a person’s name is not included on the digital wallet so even if you had the relevant codes, identifying ownership of the cryptocurrency is difficult. It becomes almost impossible if the person uses a paper wallet or USB stick to record their transactions as this cannot be found on the internet. As a result of the characteristics of cryptocurrency, it is often undisclosed and left undiscovered.
- I know my wife has cryptocurrency and I have checked the market value so that’s all I need to know isn’t it?
Even if your wife has disclosed to you their cryptocurrency and you have researched the market value, as the value of cryptocurrency is volatile, the market values must constantly be reviewed throughout divorce proceedings as the value can change so quickly. For example Bitcoin had a value of $3,500 in November 2018, but on 17th December 2020 it reached an all time high at $23,000.
- I don’t have a clue about cryptocurrency but I know my husband has lots of it. I have no interest in asking for a share of the cryptocurrency, what are my options?
Cryptocurrency being divided between the spouses in a divorce settlement also may not be appealing. If the person holding the cryptocurrency wants to keep it then, the Court may offset the value of the cryptocurrency against other assets. This is a risk for both sides. If the value of the cryptocurrency drops significantly and the other party has walked away with a £750,000 house, then this could be a poor deal. Alternatively, the cryptocurrency value could skyrocket and the party who walked away with the house could be left feeling bitter.
- I have just started the divorce process and I am worried that my wife is going to try and hide her cryptocurrency so I can’t make a claim on it.
If you are worried that your spouse will try to deplete or hide their cryptocurrency during a divorce settlement, then a court order can be made whereby they are forced to disclose their digital wallet details or the digital exchange that the digital wallet is registered to can be contacted to request that they freeze the account (similar to freezing a bank account).
- My husband has disclosed he has around £5,000 in cryptocurrency assets but I am not sure that is correct. What can I do to prove the value?
If you had concerns that your husband was undervaluing their cryptocurrency, then your solicitors during financial disclosure, can ask to see account activity on their digital wallet and can request to verify ownership. In complicated matters, digital forensic experts who specialise in cryptocurrency and cryptoaccounts can also be instructed to trace cryptocurrency, value assets and to assist in drafting questions.
- I have suspicions that my wife has been investing in cryptocurrency but she denies it. I have never seen any paperwork to prove it. Is there anything I can do?
If your wife is denying that she owns any cryptocurrency, but you suspect otherwise, then during financial disclosure, bank statements may show transfers of money to either purchase cryptoassets or money going back into the account from the sale of cryptoassets. Formal questions can be put to your spouse generally about cryptocurrency (e.g. do you have a cryptocurrency account?) and specific questions can be asked about any suspicious transactions.
This topic will raise specific queries, so if you have any concerns relating to your financial or divorce proceedings do not hesitate to contact our Family Team who are happy to help.