With cryptocurrency being more widely discussed and readily accessible to members of the public, it is unsurprising that it is starting to feature in an increasing number of divorce cases. We answer some key questions on cryptocurrency to help you better understand this constantly developing technology and what happens on divorce.

 

What is cryptocurrency?

Cryptocurrency is a digital asset created and held electronically in a decentralised system – meaning that no individual or governing body controls or regulates it.  Cryptocurrency is secured by encryption methods rather than by people so transactions are automated. It can be used to pay for goods and services, like traditional currency, however other types of cryptocurrency exist beyond just payment tokens (like Bitcoin and Ethereum) and include asset-backed cryptocurrencies like ‘stablecoins’ and NFTs (non-fungible tokens) which are tokens representing ownership of a unique item, like artwork.

 

How is cryptocurrency different to other assets?

  1. It has no physical form and exists only in the network.
  2. Transactions and accounts are pseudo-anonymous and are not generally connected to any real-world entities so it is more difficult to track than money held in bank accounts.
  3. It is completely decentralised with no server or central authority.

 

How will cryptocurrency be taken into account on divorce?

Cryptocurrency is like any other asset on divorce and will be considered depending on the facts of the case. Both parties are required to disclose their respective financial circumstances to the other to assist with the discussions about how the matrimonial assets should be divided in order to achieve fairness.

This might seem straight forward in principle, but there are a number of unique challenges when dealing with cryptocurrency.

 

What are some of the challenges of dealing with cryptocurrency on divorce?

Tracing and disclosure

Due to the pseudo-anonymous nature of cryptocurrency, separating couples could exploit this added layer of privacy to try and hide assets. It is possible to instruct tracing agents to locate digital wallets (where individuals hold cryptocurrency) if basic details are available but this service will involve additional cost so a decision to instruct needs to be carefully considered.

Securing assets

The courts have the power to issue an emergency freezing injunction to secure assets if they are at risk, and this would equally apply to securing cryptocurrency. However the effectiveness of this type of order against cryptocurrency will be limited because there is no centralised body or regulator to administer it, unless the assets are being held on an exchange (like Coinbase or Binance).

Valuation

It is not unusual for assets such as properties or shares to be re-valued during the course of negotiations, however the cryptocurrency economy is extremely volatile making it particularly challenging to value cryptocurrencies at any one time as the price can fluctuate wildly.

 

If you would like to discuss the issues addressed in this article then please contact us here or by phone – Norwich (01603 443333 ), Cambridge (01223 355333).

 

Note: The content of this article is for general information only and does not constitute legal advice. Specific legal advice should be taken in any specific circumstance.