A guide to dealing with cryptocurrency assets during a divorce
Divorces are complicated on many levels, but especially so when it comes dividing up and assigning financial assets and future payments.
But where do divorcing couples stand when it comes to cryptocurrency assets?
Is your former partner entitled to half of your Ethereum profits, or can they lay claim to your Cardano capital in years to come?
Luckily, Joshua Green – a Senior Associate in the private wealth and family team at Charles Russell Speechlys – has the answers…
A decentralised, digital divorce
If you don’t know your Bitcoin from your Polkadot, but your spouse does, you could be in trouble when it comes to getting divorced.
If your spouse has crypto rather than cobwebs in their digital wallet and you get divorced, there is a good chance you will be entitled to a share of this mysterious and unconventional asset. But identifying such an intangible asset, and making sure you get your fair share, is likely to be tricky.
With a clear increase in popularity, and with El Salvador becoming the first country to accept Bitcoin as legal tender, dealing with cryptocurrency on divorce is becoming ever more commonplace. It causes a headache for lawyers and couples alike.
So what are the key issues to be aware of?
If you are getting divorced, you must disclose all of your financial resources without exception. Failure to comply with this obligation is likely to land the perpetrator in hot water, and imprisonment for non-disclosure has been known.
This includes any crypto investments; your spouse will have to tell you what they have and vice versa. Cryptocurrencies are, however, untraditional assets – they are intangible, and by their very nature, more obscure than almost all other assets or investments. In divorce proceedings, this can make their existence uncertain and hard to ascertain – they are far more elusive than the money in your high street bank account.
And so be wary – if your spouse holds cryptocurrencies, they must be identified as quickly as possible, and swift action may need to be taken to ensure they are not moved out of reach. The English court does have the power to make freezing orders over investments in digital currencies if necessary. Divorce lawyers and judges alike are very alive to nefarious parties seeking to keep their assets hidden.
The very nature of cryptocurrencies means they are likely to be an attractive asset class for those wishing to hide assets – parties risk the court’s wrath if they go down this prickly path. In divorce proceedings, a value must be ascribed to all matrimonial assets, whether by agreement between the parties or a judge. Only once a value has been established and agreed can the parties begin to negotiate a financial settlement.
The fluctuating value of cryptocurrencies makes it extremely difficult for parties and practitioners alike when it comes to reaching financial settlements and causes a real headache for judges. How can you be sure the value ascribed to that asset on the day you reach an agreement will remain consistent in the following days, weeks and months? It could change dramatically from one hour to the next.
As the value of cryptocurrencies are notoriously unstable, your spouse could go to bed a millionaire and wake up with nothing if the currency in which they have invested has been the subject of a tweet by one of any number of crypto-influencers. There will of course be one party who has an interest in the asset being worth nothing – a speculative punt and nothing more – and another party who wishes for the asset to be worth many millions.
Perhaps one option might be for each party to receive a percentage share when the cryptocurrency is sold, with a specific price being a trigger for a sale?
While the longer term future of cryptocurrencies is perhaps as uncertain as to their value, there can be no doubt they are becoming increasingly prevalent in divorce proceedings. If they are here to stay as many suggest, perhaps you need to get up to speed with the contents of your spouse’s digital wallet, and understand how to identify your ADA from your BTC.