Cryptocurrency and Divorce

13/10/2021

The use of Cryptocurrencies is increasing in popularity now more than ever. Family Practitioners are often faced with questions from clients as to how crypto assets are dealt with when a couple divorce.

What are Cryptocurrencies?

Put simply, it is digital or virtual currency. The most common type of Cryptocurrency is Bitcoin but there are others such as Litecoin and Ethereum. Cryptocurrencies are made up of blockchain technology. The blockchain records every bitcoin transaction and is distributed across several computers making it difficult to hack or tamper with. Cryptocurrencies can be purchased on specialist exchanges and can be used to buy some products online.

The holder of the cryptocurrency has a public key which is electronic data that is visible to any participant and a private key which is confidential and is not publicly visible. The linking of the public and private key gives control and access to the asset. If the key is lost the asset is lost. The key is stored in a “wallet” which can take form in either a “cold wallet” i.e. on paper with the key noted, a USB drive, or a “hot wallet” i.e. connected to the internet.

Are Cryptocurrencies property?

Section 25 of the Matrimonial Causes Act explains that the Court shall have regard to the…” income, earning capacity, property and other financial resources…” when it comes to the division of assets between spouses.

There is no Family Division authority dealing with cryptocurrency as property however through case law emanating from the Commercial Courts, cryptocurrency is capable of being defined as property. However there are practical issues to consider such as how to identify, locate and trace the cryptocurrencies. Ownership is often difficult to establish as there is no central database and security is extremely tight meaning cryptocurrencies can be easy to hide and difficult to locate.

Tips for Non-disclosure and preservation

There are practical steps that can be taken to establish prima facie evidence of cryptocurrencies in situations of non-disclosure, as follows:

Direct or oral evidence – A spouse may recall a historic mention of the purchase of crypto assets. This may then, at the very early stages of disclosure, necessitate an application for an OS v DS (Oral Disclosure: Preliminary Hearing).

Disclosure – A thorough search through an individual’s bank statements to source the original acquisition. It may not become apparent straight away and so the key is to look for a movement of currency and any references to specialist exchanges such as coin base. It should be noted that the initial trigger transaction may be relatively small in value. Once identified, you would then look at instructing an expert to identify the transactions or blockchain and the key. Solicitors could then consider obtaining a third-party disclosure order, freezing order, and/or a preservation/delivery up order. It can be a costly exercise and in addition cryptocurrencies are also intrinsically volatile and therefore cause issues in valuation. A client would therefore need to be content before embarking in such proceedings.

More information

If you are concerned about cryptocurrencies during a divorce, then please do not hesitate to get in touch with our experienced family team.   

This article was written by Rukhma Sohail, Solicitor. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of October 2021.

13/10/2021

Authors

Rukhma Sohail

Solicitor

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