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Cryptocurrency valuation in divorce

By June 23, 2021February 23rd, 2024No Comments

Encrypted digital forms of currency not distributed by banks are known as cryptocurrencies. Probably the best known example is Bitcoin. As the use of cryptocurrencies becomes more common around the world, so too does its appearance in family law property settlements. How can you be sure you receive a fair share in a property settlement that includes cryptocurrency assets? We look at cryptocurrency valuation in divorce.

Cryptocurrency and family law

Spouses working out a property settlement are under the ongoing legal duty of providing full and frank disclosure about their financial situation, assets and liabilities. Traditionally, currency in dollars is declared as part of the asset disclosure process. But now, unconventional, intangible assets like cryptocurrencies are increasingly in the mix. When it comes to cryptocurrency valuation in divorce, what should you know?

Parties determined to reduce their apparent wealth will sometimes try to hide assets. This is not new. However, attempting to hide them by converting them to cryptocurrencies is a relatively new problem for spouses and their lawyers.

People may think that the intangible nature of cryptocurrencies makes them more vulnerable to being hidden from family law proceedings. It’s true that digital assets can be more difficult to trace. Unlike bank accounts or shareholdings, Bitcoin and other cryptocurrencies can be difficult to link to an individual.  However, people using Bitcoin and other cryptocurrencies often feel a false sense of total anonymity and believe they can use the virtual currencies to hide assets, thereby avoiding full disclosure of their financial situation. And even though the trade in cryptocurrencies can be difficult to trace, at some point when traditional assets were converted into online assets, there will likely be an evidentiary trail that experts can pinpoint.

So when disclosure of transaction records relating to cryptocurrencies is not forthcoming, forensic accountants sometimes become involved in successfully tracking down the hidden assets.

Lawyers around the world are increasingly required to deal with cryptocurrencies in financial settlements. For example, in the UK, a wife was awarded a huge lump sum after divorcing her supposedly penniless husband, after the judge was satisfied that the husband was hiding considerable assets and had significantly misled the court as to his finances. Similarly, US courts are beginning to issue search and recovery orders of assets to include cryptocurrencies.

So how should cryptocurrency be valued?

Generally speaking, all assets are given a value in a property settlement.  

Digital currencies are well-known to vastly fluctuate, even on an hourly basis.  Because of this everchanging value, it can make their accurate valuation hard. Will the value given to the cryptocurrency asset stay the same as it was on the day that agreement was reached? It’s unlikely. Therefore the danger is that this instability could lead to parties not receiving a fair share of matrimonial assets.

Some say cryptocurrency assets should be treated the same as shares or foreign currency holdings are. In those cases, values are generally determined to be as at the time a court hears the matter. As yet there is little case law in Australia on the subject of cryptocurrencies specifically. Alternatively, parties may be able to agree that each party gets a percentage share when the cryptocurrency is sold. A specific price can be set as a trigger for sale.

Timely identification

If your spouse holds cryptocurrencies, it’s important that you identify these as soon as possible. It may be that steps ought to be taken early on, for example, by restraining a party to deal with crytocurrency. When preparing to divide assets in a property settlement, if you know (or suspect) that your ex-partner possesses valuable cryptocurrencies, it’s important you raise this with your lawyer so your lawyer can advise on the best way to protect your rights.

Do you need help with a property settlement or other family law matter? Please contact Canberra family lawyer Cristina Huesch or one of our other experienced solicitors here at Alliance Family Law on (02) 6223 2400.

Please note our blogs are not legal advice. For information on how to obtain the correct legal advice, please contact Alliance Family Law.

You can read more about cryptocurrencies here.

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