Cryptocurrency - Here's what happens to it during a separation
Cryptocurrency - Here's what happens to it during a separation
Monday 10 October, 2022
How do you value property when its value can fluctuate within minutes, if not seconds? In 2020, the High Court held that digital assets, such as cryptocurrency, are classified as property.
This means that if you (or your partner) acquired cryptocurrencies during your de facto relationship, marriage, or civil union then you need to disclose it, as it will likely be considered a relationship property asset and be subject to equal division.
The main exception to the rule of equal sharing is if the cryptocurrency is classified as your separate property. For example, if you acquired it by gift, inheritance, or before the relationship began, it may not be considered relationship property. This can also include when cryptocurrency was acquired from separate property funds not intended for the use or benefit of both partners.
It is also worth noting that separate property will become relationship property if you apply relationship property funds (such as income) which caused the asset to increase in value.
How do we value cryptocurrency?
As a starting point, the Courts adopt the values of assets at the date of hearing (the current date). However, this is discretionary, and the Courts may adopt another date if it is just in all circumstances.
It is helpful that the dollar value of cryptocurrency can be identified with reference to the prevailing and historic market price on the exchange. If this is not possible, then an expert can be instructed to provide a valuation if partners cannot agree.
What if my partner does not disclose evidence of their cryptocurrency?
If you are certain that your partner owns cryptocurrency but is hiding it, it can be difficult without the key or access code to their digital wallet. As hacking into your partner’s private devices is a cybercrime, you will need to ask for access to your partner’s bank statements which will show deposits or withdrawals to purchase cryptocurrency. Their tax return may also provide evidence of cashing crypto holdings into “real” money as sales should be declared as a capital gain or loss.
If your partner continues to withhold disclosure, then you should apply to the Family Court seeking orders under the Property (Relationships) Act 1976 to divide the assets and seek discovery of documents. This can be a very time and cost intensive process, but the Family Court can impose severe penalties for non-disclosure of assets.
How do we divide cryptocurrency?
Cryptocurrency is treated the same as any other relationship property asset, but there are a couple of options to consider when dividing it:
- Half of the cryptocurrency could be transferred into the receiving person’s name, bearing in mind the risks associated with its value.
- The cryptocurrency could be converted into cash. This would allow the funds to have a more stable form but will mean that both parties miss out on any future increase in value.
- Agree on a value at a specific date so that it can be factored into the settlement calculations.
Whichever option you choose, we note that an increase in the value of the cryptocurrency could result in tax being payable on the sale of the asset. This could be an important factor in deciding how the cryptocurrency should be divided between the parties.
Conclusion
The dramatic rise in cryptocurrency’s popularity introduces new complexities and challenges in identifying, valuing and dividing relationship property. Our Family Team is experienced in advising clients on digital assets and can assist with reaching an agreement or applying to the Family Court.
If you have any questions relating to this article, please get in touch with one of our experts below.
