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FAQs - Cryptocurrency in Divorce

on Monday, 28 February 2022.

Cryptocurrency has been around since 2009 however in recent years it has become more mainstream. Whilst the market can be volatile, cryptocurrencies can be a significant asset on divorce and should not be ignored.

What Is Cryptocurrency?

  • Digital money that has no physical form. Many are held as investments to be traded online, however they can also be used to buy goods and services. For example, you can now purchase a Tesla or add it to your Apple Pay wallet.
  • It has no centralised system such as a traditional bank, so it is unregulated and exists outside of the control of governments or authorities.
  • They operate using 'Blockchain' technology. A useful analogy to explain this is, instead of having a person at a bank keeping the records and verifying transactions, computer after computer verifies the transaction in a very long chain.
  • They are anonymous - you don’t need to give names when dealing in cryptocurrency.
  • The most common cryptocurrencies are Bitcoin and Ethereum, however many more exist.

Should Cryptocurrency Be Considered on Divorce?

Yes, absolutely. Cryptocurrency is an asset, sometimes of significant value, and the Family Court have powers to make orders against it on divorce.

When negotiating how to divide the finances on divorce, both you and your spouse are under a duty to provide full and frank disclosure of your assets - and this will include digital assets, such as cryptocurrency.

How Should I Disclose My Cryptocurrency?

If you are the person disclosing your cryptocurrency, in order to save time and legal costs you should be upfront about your assets and provide the public keys for your crypto wallets and 12 months transaction history. The public key will provide access to information about the assets held, and the transaction history is like a bank statement. The value may change drastically due to the volatile nature of the currency, and therefore regularly update the values and agree a value before any court hearings or settlement negotiations.

How Do I Know Whether My Spouse Is Hiding Cryptocurrency Assets?

Due to its virtual nature, it can be complex to trace. The first place to look is traditional bank and credit card statements, where your spouse may be transferring standard currency (known as 'fiat' in crypto language) onto a cryptocurrency trading platform.

Whilst many hold their cryptocurrencies on an online trading platform, it can also be held in a 'Cold Wallet'. This is where all the information held offline, usually on a USB stick called a ' Nano Ledger', or even written down on paper. Consider if you can recall your spouse talking about this or if you have seen a Nano Ledger at home. However, if you do not have any evidence, it may be very difficult to ever find a cold wallet.

Does My Spouse Earn an Income from Cryptocurrency?

Cryptocurrency can be 'mined', which can be a source of income for those taking part. People who mine  cryptocurrency are helping the Blockchain move along in return for a reward (acting as the verifiers in the analogy above).

These days, mining is usually done by businesses with huge numbers of computers and most people are unable to do it from their living rooms as they did in the early days of cryptocurrencies. However, if your energy bills at one point were excessively high, perhaps your spouse had lots of computers, or you recall discussions about rewards or mining, this could suggest someone was mining cryptocurrency.

Tax returns should be carefully analysed, as if the cryptocurrency is producing an income or is being received from an employer, it should be declared as such on the self-assessment.

Ultimately, non-disclosure of assets in financial negotiations is a criminal offence, and therefore hiding assets poses a serious risk to the non-disclosing party.

How Can I Find the Cryptocurrency?

If initial investigations and questions do not locate any cryptocurrency and you still believe your spouse has crypto-assets, forensic accountants and cryptocurrency specialists can be instructed to investigate.

How Will Cryptocurrency Be Distributed on Divorce?

If the parties agree that the cryptocurrency is to stay with its original purchaser, it will still be recognised as capital (and potentially income) that they have access to. It could then be offset against another asset.

Cryptocurrency can also be transferred from one party to another, or shared. In this case the coins can either be transferred into 'fiat' or the receiving party could open up their own cryptocurrency trading account to receive the coins.

Parties must take specialist tax advice if transferring cryptocurrency as this may give rise to Capital Gains Tax.

If you have any questions about Cryptocurrencies as part of the divorce process, please contact a member of our New Enquiries team on 020 7405 1234,or complete the form below.

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