When it comes to divorce, it is becoming increasingly common for couples to have a significant amount of crypto assets. Alongside other more traditional assets, it is important to take these into account when negotiating a financial settlement. However, one way crypto assets differ is that they are much easier to hide. But what are crypto assets, and how do you find and value them? This article delves into everything you need to know about crypto assets and divorce.
When it comes to divorce, it is becoming increasingly common for couples to have a significant amount of crypto assets. Alongside other more traditional assets, it is important to take these into account when negotiating a financial settlement. However, one way crypto assets differ is that they are much easier to hide. But what are crypto assets, and how do you find and value them? This article delves into everything you need to know about crypto assets and divorce.
If you have a family issue and you require legal advice to understand your options, contact specialist family law solicitor Rebecca Calden-Storr of Stowe Family Law. With over 20 years’ experience, she is regularly instructed on matters arising from relationship breakdown, including divorce, financial disputes, complex assets, and disputes relating to children.
What are crypto assets?
Crypto means “hidden” and refers to the secure digital way data is held on who owns the asset. Widely known crypto assets include Bitcoin, Binance, Ethereum and Tether, although there are thousands more, with new ones added regularly.
Crypto assets also differ from more traditional assets in that there is no central regulation authority or government which control and regulates them in the same way as banks and building societies. They operate using blockchain technology, which is a database ledger system to authenticate digital transactions.
Are crypto assets included in a divorce settlement?
Crypto assets are considered to be an asset under UK divorce law, and therefore must be disclosed as part of divorce settlement proceedings. Both spouses are under a duty to make full and frank disclosure of all assets they own, and crypto assets are no different.
It is important to be upfront about any crypto currency investments you may have, and this includes disclosing the type of asset, the amount invested, and any potential gains or losses. By being open and honest, you can avoid any accusations of hiding assets and ensure that the division of matrimonial property is fair.
What information does the crypto asset holder need to obtain in disclosure?
To assist in disclosure, the holder will need to obtain the details of their crypto “wallet” and the value contained within it. A wallet is a crypto focussed term which basically means the account where the crypto is stored. There are two common types of crypto wallet: “hot” which are connected to the internet, and “cold” which are held offline and may be accessed on a device similar to a USB stick.
The holder should also obtain the “public key” of their crypto wallet as this is equivalent to an account number. This key can be shared to validate ownership. No one can access the wallet to withdraw assets, but third parties could send crypto to the wallet using the public key. A “private key” is the equivalent of a pin for a traditional bank account and allows access to the wallet to manage the crypto. A private key is not required for disclosure and should be kept private.
How are crypto assets valued for divorce purposes?
Crypto assets typically trade in a highly volatile market which has a value that fluctuates frequently. Each crypto asset is multiplied by the published value for one of those assets, very similar to the way in which share valuations are calculated. It is therefore important the valuation of any crypto asset is up to date on the day of negotiations or a court hearing.
This is in contrast to traditional assets such as property, pensions, and bank accounts, which tend not to fluctuate to any great degree. This means that if you are entering settlement discussions or attending court, and your pension was valued six weeks before, it is unlikely to cause a problem, as its valuation will probably be very similar.
How can crypto assets be divided?
The court has the power to order crypto assets to be transferred in whole or in part to the other party. This generally means that a new crypto account is set up for the other spouse. The court can also order the assets to be sold, with a percentage of the proceeds being divided between the parties.
As stated above, it is not uncommon for there to be a significant variance in the value of crypto assets from one day to the next. This makes it harder to ensure that a fair settlement is achieved. In many cases, the court will order both parties to own some of each type of crypto asset to make sure they are both exposed to the potential losses and gains in the market. However, if the crypto asset is held as an NFT (Non Fungible Token), sharing is not an option.
Anyone seeking to offset crypto assets against more stable and traditional assets should exercise caution. What may seem like a fair deal one day, could be grossly unfair by the next.
What can I do to find hidden crypto assets?
Crypto investments are a relatively new assets class in divorce, and as such, there are many legal considerations and challenges that can arise.
In the event that one party is not being transparent about their investments, there are several ways to discover the crypto assets they may have. This includes looking at browsing history, the activity of an IP address at the family home, and looking through your spouse’s bank or credit card statements (as provided in disclosure) for transfers in and out to crypto currency exchanges. If you have evidence that your spouse previously owned crypto assets, or they informed you they did, then you can ask the court for an order for disclosure.
If your spouse continues to deny holding any, then it may be necessary to carry out a forensic investigation of their accounts. Very often there are historic signs within bank accounts, such as buying transactions, that would show dealing with crypto currency. It may be necessary to engage a forensic accountant who is able to analyse the other party’s financial disclosure and look for irregularities.
The reality of crypto assets means they are easier to hide than traditional assets. However, a court has the power to infer there are hidden assets if there are irregularities that cannot be explained. The judge can make an adjustment for this when making their final financial order.
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