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Why cryptocurrencies are complicating divorce settlements

Cryptocurrencies are the world’s fastest growing asset class and while many are reaping the benefits of their investments, cryptocurrencies are complicating property settlements in matrimonial disputes. Where people have invested in cryptocurrencies, such as Bitcoin and Ethereum, it can be difficult to assess the net asset pool to be divided between parties. This is because cryptocurrencies are difficult to value and can be hard to trace which has resulted in parties being able to hide their assets.

Cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. The value of cryptocurrency has fluctuated greatly over the past few years; for example, 1 Bitcoin purchased between 2014 and 2016 cost AU$200. At its peak in 2017, 1 Bitcoin cost AU$19,783. However, its value also had the potential to drop 20% within 90 minutes. Currently, at March 2018, 1 Bitcoin is worth approximately AU$10,500.

In family law proceedings, issues can arise when determining the assets available for division in a matrimonial property settlement. In particular, cryptocurrency can be hidden easily compared to tangible money kept in a bank, as it is not tied to a particular account or user. Hiding assets by converting them to cryptocurrency can be done quickly and anonymously, impacting on issues of non-disclosure between parties. While digital forensics can be brought in to determine if assets are being hidden, this is an arduous and expensive exercise.

Recently in the United Kingdom, cryptocurrencies have been a complicating factor in family law divorce proceedings. There have been 3 recent divorce cases in the UK where parties have sought the disclosure of the value of the party’s cryptocurrencies. One of the most lucrative cases in the UK involved an initial investment of £80,000 in cryptocurrency in November 2016, which was valued at £1m in December 2017 and in February 2018 was worth £600,000 (AU$1.08 million). If a party does not disclose the value of their cryptocurrency, the divorce process becomes much more costly and laborious.

In addition to issues of non-disclosure, valuing cryptocurrencies is very difficult. To ensure valuations are accurate and have not dramatically changed throughout the process of discovery, lawyers in the UK have suggested it may be necessary to have the cryptocurrency valued multiple times throughout the property settlement process. In the UK, the value of cryptocurrency can have large impact on the outcome of a property settlement because the UK has a reputation for being a more sympathetic jurisdiction in which to file for divorce as judges often order an equal split of the assets earned during the marriage. As has been considered in the UK, it is likely that the valuation of cryptocurrencies will be made either at the time of filing an application for divorce, or at any other date deemed appropriate by the judge depending on the circumstances of the case. This seems logical and it is likely that Australian family courts will also follow this process of valuation.

Clearly, the value of cryptocurrency is volatile. In addition, the technology behind it is rapidly changing. While Australian family courts have not yet had to deal with cryptocurrencies complicating divorce proceedings, it is imperative that Australian courts and legal practitioners keep up to date with foreign jurisdictions which have dealt with these issues in a family law context. When determining the value of the property pool between parties in a property settlement, family lawyers need to make the request for cryptocurrency investments a usual component of discovery because if these investments are not properly disclosed, parties may not receive a fair share of the asset pool.

 

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