Cryptocurrency and divorce

When a married couple separates and gets divorced, one of the issues that will invariably need to be addressed is the financial aspect. 

When considering finances as part of divorce proceedings, all assets are taken into account whether they are in the sole name of the husband or wife or their joint names. This will include any property, pensions, savings…anything that has value and so includes cryptocurrency and digital assets. 

Cryptocurrency has its roots back in 2008 when Satoshi Nakamoto published a proposal for a system of digital currency which would allow parties to transact with each other using a system of private keys and public records as part of a blockchain. Following that Nakamoto published the open-source software and created the first block in the blockchain called the Genesis block and so Bitcoin was born. 

Bitcoin is now one of many different types of crypto assets and there are a vast array of options available for the crypto investor with the potential to see significant returns. The value of 1 Bitcoin, for example, first surged in 2010 when it increased from a fraction of a penny to $0.09. In November 2021 the value reached an all-time high of $68,789 and as of the date of writing this article, the value currently sits at $16,537.80. Non Fungible Tokens (NFTs) can also be significantly valuable. In 2021, Christies sold an NFT collage of 5000 pieces of artwork for $69.3 Million. 

Given the growth in value of digital assets and therefore their popularity, it is hardly surprising that we see them increasingly as one of the assets held by couples who are divorcing. 

Crypto assets on divorce raise some particular issues. 

1) Disclosure 

When dealing with the financial aspects of divorce both parties are under an obligation to provide full and frank financial disclosure. 

For Crypto assets, full details of the assets held including name, asset type, size of holding and where held should be sought/provided. If assets are held on an exchange or commercial platform in custodial wallets, then the account numbers or wallet address and the public keys for all accounts (with extended keys if relevant) together with transaction statements for the last 12 months should also be obtained. Where crypto assets are held outside of exchanges in non-custodial wallets, then the wallet address and public keys must be provided. 

If full disclosure is not given, this can create real difficulty in identifying assets. Information may be available when looking at regular bank statements as at some point most individuals are likely to have used an exchange to change “real” money into crypto assets or the reverse. We also may be able to seek disclosure from the exchange where the assets are held, depending on where the exchange is based. In some cases, it might also be necessary to instruct an expert to identify and trace digital assets. 

2) Volatility

The value of crypto assets is hugely volatile. A person who held £10,000 worth of Bitcoin on 22nd November 2019 and had not made further transactions will have seen the value of that rise to approximately £24600 in November 2020 and skyrocket to approximately £77800 a year later only to drop back to a current value of approximately £24500. 

There are also other risks. Where the assets are kept on an exchange, if the exchange were to go bust, then the entire balance could be lost. Celsius and Voyager Digital filed for bankruptcy earlier this year. Currently, the crypto world is reeling as a result of FTX going into liquidation with FTX admitting that more than a million people may have lost money that may run into the billions. 

Even where assets are not held on an exchange but instead in a non-custodial wallet, there are risks. The private key is essential in order to prove a persona has the right to deal with the asset. If the key is lost, they are unable to digitally sign the transaction and the asset is effectively locked and inaccessible unless the key is found. 

3) The Courts

Value volatility is something that the courts are used to dealing with and is an issue that the courts consider when looking at the division of assets. Property and traditional savings might generally be regarded as safe or “copper-bottomed” whereas shares, business interests and crypto assets are likely to be considered risk-laden. 

The fairest option might be to split the crypto asset itself and either require its conversion into “real” money to be divided equally or for half to be transferred to the spouse so that they each share the risk and reward associated with the asset. It would still be possible for one spouse to keep the entirety of the crypto assets in return for the other spouse retaining other assets but it would need to be acknowledged that any fluctuation in the value (even if great) is unlikely to be considered a good reason to revisit the order made. 

It is clear that crypto assets are here to stay and that we will continue to see crypto assets when dealing with the financial aspects of marital breakdown and something which could be of significant value and have a substantial impact on the outcome of a case. 

At Birkett Long our specialist family solicitors offer free 15-minute telephone consultations – If you are contemplating a divorce or have recently separated and want advice on how to resolve the related issues, please get in touch. I can be contacted on 01206 217305 or email me at [email protected].