Divorce & Cryptocurrency

The volatile nature of the crypto market is the main reason people avoid exposure to the asset class. During 2021, there has been much speculation regarding Elon Musk, the CEO of Tesla and SpaceX and his ability to move the crypto-currency market substantially by his views and opinions on the market. Announcing that Telsa bought $1.5 billion worth of bitcoin, and then announcing that he is concerned about the environmental impact.

What is cryptocurrency?

A digital currency that uses cryptography to regulate the creation of files as money. Digital signatures are used to securely verify all transactions, often on a public ledger. Every user has a public key, which is a string of numbers but to log a transaction they have a private key. Only the user can link their private key to the public key, making it virtually impossible to identify them on the ledger. Most cryptocurrencies are decentralised, meaning they are not issued or controlled by a central bank.

Bitcoin was the first cryptocurrency ever created by Satoshi Nakamoto, a character that soon “vanished” after publishing the Bitcoin whitepaper. To this day, Nakamoto has not been found, and a huge debate remains over the mythical nature of this digital revolution.

What cryptocurrency means in divorce

When resolving financial matters arising from a divorce, both parties are under a duty to provide a full and frank financial disclosure. Financial disclosure involves the parties disclosing all of their assets, liabilities, pensions and income including any crypto assets.

Whether the crypto assets will form part of the overall settlement depends on the factors that the Court would consider in any financial remedy proceedings including whether they form part of the matrimonial pot, the length of the marriage, the parties’ needs and so on.

What if my spouse does not disclose his/her cryptocurrency during divorce proceedings?

This can be of concern for some spouses as cryptocurrency is a digital asset which makes it difficult to identify. Furthermore, it is not controlled by the Government or central authorities. Another challenge with this asset type is that the value can quickly fluctuate or can be sent to others without it being traceable.

Instructing a family solicitor who specialises in financial matters can help when considering financial disclosure. There could be traces on bank statements that show transactions being made to banks or organisations that deal with cryptocurrency.

Your lawyer can also instruct a specialist forensic expert to provide advice regarding the spouses’ financial activity and what such investment could mean in the current market.

If during divorce proceedings, there is a concern that a spouse may be transferring further funds into cryptocurrency to try to dissipate them by hiding them or transferring them to others, then one option can be to apply to the Court for an injunction to freeze their assets.

If it is obvious that a spouse has been deliberately trying to dissipate their assets in order to defeat their spouses’ claim, and the Court can be convinced about their actions, then the Court can set aside transactions and order that such assets be ‘added back’ to the matrimonial pot for distribution upon settlement.

When should I instruct a solicitor?

A solicitor should be instructed as early as possible. The parties only need to disclose financial disclosure for the last 12 months, unless the Court gives permission for further disclosure. For this reason, the sooner a solicitor is instructed, there is a higher chance of being able to trace transactions made to try and dissipate or hide assets.