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Cryptocurrency in matrimonial finance

In the event of a marital breakdown, you may be aware that assets such as property, pensions, investments and savings will need to be dealt with upon divorce. Additionally, the Court now also considers any cryptocurrency to form part of the matrimonial pot of finances in the event of a divorce.

What is cryptocurrency?

Cryptocurrency is an unregulated form of digital currency that only exists electronically. The most popular type of cryptocurrency is Bitcoin, though there are thousands of variations of this currency including Ethereum, Tezos, and Dogecoin.

This digital money can be exchanged online for good and services. These cryptocurrencies work using a technology called blockchain, which is a decentralised technology that manages and records transactions securely.

Cryptocurrency is seen as an investment, and approximately 4.4% of adults in the UK hold this high-risk asset. This figure may seem somewhat low, however this has grown more than a fifth in a year, and the popularity of cryptocurrency continues to increase as these coins progress in their status. Therefore, it is inevitable that cryptocurrency will appear in financial proceedings in numerous cases in the near future.

What issues may arise when dealing with cryptocurrency in matrimonial finance matters?

In matrimonial financial matters, you and your spouse have a duty to provide full and frank financial disclosure. Everything must be disclosed that is relevant to the matrimonial finances. This would therefore include any holdings in cryptocurrency. The value of the cryptocurrency would need to be determined and taken into account to form part of the financial settlement.

Should your spouse not provide full and frank financial disclose and seek to hide any assets, including cryptocurrency, they will be deemed to be in contempt of court, therefore facing possible outcomes such as a fine or imprisonment.

Additionally, as cryptocurrency is unregulated, there is the possibility that your spouse may attempt to hide the assets with a simple transfer as this can be difficult to trace and is considered easy to hide. It may also be useful to instruct a forensic expert to try and trace any hidden cryptocurrency so the Court can add this back to the matrimonial pot.

The initial investment can be easily proved if it was made from a bank account, but following the funds after this point can be difficult. It is likely there will be increasing reliance on specialist forensic investigators where cryptocurrency is present in financial proceedings in an attempt to combat non-disclosure of these assets. If your spouse has hidden, or attempted to hide assets, the court reserves the power to freeze their assets under section 37 of the Matrimonial Clauses Act (MCA) 1973. Cost orders may also be made against parties who try to cheat the court and their spouses, posing as a deterrent to such conduct. Intentionally failing to disclose cryptocurrency assets may even be deemed as conduct that should be taken into account when distributing assets. Significantly, while cryptocurrency is easier to hide, it is not as easy to hide as people believe when you have access to a knowledgeable solicitor who can help guide you through this process.

The volatility of the crypto market should also be considered. The value of cryptocurrency is extremely unpredictable and ever-changing, making it difficult for this to be fairly valued within a divorce matter. One day an investment can be worth £500, and £5000 the next. This can present difficulties when trying to determine a fair financial settlement as the position of this can change on a day-to-day basis.

Expert valuations should be obtained to establish the true value of the cryptocurrency holding, insofar as possible. Having obtained the valuation, the court will then consider how best to share the cryptocurrency. The court could offset one party’s share in the cryptocurrency against another matrimonial asset in cases where there are sufficient assets to do so. There is therefore always the risk of inequality where cryptocurrency is involved as there is always the possibility the value of this could either soar or plummet post-final order. Since financial orders are generally made in full and final settlement, there is no opportunity to revisit this claim. Courts do try to avoid one party ending up with all the risk-laden assets for this reason. This is why it may be better to push for a percentage split, rather than a split of monetary value, when deciding who will get what of the cryptocurrency in question. Of course, this will vary on a case by case basis.

What should I do if I am affected by this?

There is currently no real case law in this area, as the judicial system is effectively playing catch up to evolve in a way where these holdings are taken into account.

It is imperative that the solicitor handling your financial matter is able to ask the right questions and has knowledge in this area. Whilst this article addresses cryptocurrency, crypto assets are not simply just coins but can come in several other forms, all of which have a place in matrimonial financial matters.

If you or your spouse have cryptocurrency holdings, or you suspect that they do, get in touch so that we can guide you in the right direction. This may be in the form of financial proceedings, or a prenuptial agreement.

If you would like to discuss the issues raised please do contact us.

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