CRYPTOCURRENCY ASSETS WITHIN DIVORCE PROCEEDINGS
Released On 15th Jan 2023
Bitcoin, Ethereum and other forms of cryptocurrency have been in circulation for over a decade, becoming more mainstream and cannot be ignored as a matrimonial asset. There appear to be many more articles written about cryptocurrency in addition to more regular reference to crypto assets in the headlines. The headlines do not always convey good news and can be particularly distressing and disappointing for those who hold crypto assets. For example, the recent collapse of the trading platform FTX has severely impacted the cryptocurrency markets. FTX used by holders of crypto currency to handle transactions is currently under investigation and there is no guarantee that investors will recover the funds.
With time on their hands during lockdown more people researched cryptocurrency online and were tempted to dabble in crypto assets as another type of investment in the expectation that a small stake would yield high return at some point in the future.
Inevitably, due to the significant rise of people investing in cryptocurrency, the family law practitioner is seeing reference to crypto assets on a more regular basis when parties are providing disclosure within divorce proceedings. Family law practitioners and the courts may however lack the expertise to deal with these types of assets. They may be becoming mainstream but not everyone is familiar with them.
When parties are going through divorce proceedings and financial remedy proceedings have been issued, both parties are under a duty to provide the court and each other with full and frank disclosure of all their assets by completing form E-financial statement.
If one or both parties disclose a holding of cryptocurrency, this can prove problematic for both their legal advisers and the courts. Firstly, the valuation of the cryptocurrency has in the past proven to be volatile due to the dramatic fluctuations in price so it can prove incredibly difficult trying to attach a value to the crypto asset. This means valuations may be significantly different at various stages of the divorce proceedings for example from when entering negotiations up to the date of the final hearing, if the court is asked to determine how the assets are distributed. It is therefore imperative that up to date valuations be obtained at every stage of the negotiations and for every hearing.
Secondly, this fluctuation in value may of course be compared to the fluctuating value of volatile share prices in turbulent markets but will render offsetting crypto assets against other matrimonial assets to be problematic since the value of cryptocurrency, as has been seen in the past, can increase or decrease dramatically in value within a matter of days so may impact any agreement reached between the parties or any order imposed by the court.
Nondisclosure of assets is an issue all family law practitioners will be used to advising on and dealing with, however if one party fails to disclose their ownership of cryptocurrency it can be extremely difficult but not impossible to locate such assets. There is no formal paper trail so there is, in the first instance, reliance upon information known to the other spouse to make the relevant enquiries and the last resort after making the usual enquiries may be to instruct an expert in the cryptocurrency field to carry out a forensic investigation on behalf of the family law practitioner. Due to the costs involved in pursuing this course of action proportionality must always be considered but one solution can be to invite the Court to make adverse inferences to award more of the matrimonial assets that have been disclosed within the proceedings if the Court is satisfied that assets by one party have not been disclosed.
For more information please contact Jo Richards.
