03 September 2020

Eleven years ago, you nor I, or the Family Courts would have ever come across Cryptocurrency. Since 2009 and the development of Bitcoin, the first and most well recognised digital currency ('cryptocurrency'), the Family Courts have had to develop new ways of understanding their complex nature and issues around valuation to see how they form part of a financial settlement upon divorce.

This article looks at what cryptocurrencies are, how they can be held, practically what can be done if you believe your partner has crypto-assets, and how the court may treat them on divorce.

What is cryptocurrency?

A cryptocurrency is a digital currency traded through an online ledger, known as a blockchain. It does not physically exist and transactions take place via a system of encrypted online code. Cryptocurrency purchasers own encrypted digital wallets and transactions take place by sharing keys (or code) which is attributed to each individual crypto-asset. Bitcoin is now the most widely recognised digital currency, and in April 2020 the crypto-asset industry has developed to be worth over £100 billion worldwide.

How is cryptocurrency held?

Once an online wallet has been set up, the code can be traded online through a decentralised system via an exchange (such as Coinbase), this meaning that no one or no government controls it. The code is a series of numbers and letters and the code in an individual’s online wallet correlates to that which is held on the currencies account ledger. Due to the complex web involved in owning and trading cryptocurrencies, the Family Courts are more frequently encountering issues surrounding the non-disclosure of these assets, as well as difficulties valuing and distributing them on divorce.

My partner owns Bitcoin - how can I find out more?

Bitcoin, like other financial assets in divorce proceedings, will be take into account in accordance with the facts of the case. When doing so, the court will need to first understand the value of the asset as well as its ownership. This throws up two issues:

Valuing Bitcoin

At the time of writing (August 2020), 1 Bitcoin can be purchased for £8,627.84. Were this post to have been written 5 years ago in November 2015, 1 Bitcoin could be purchased for £215.20. The value is highly volatile. Bitcoin peaked on 17 December 2017 at $19,783.06. So how and when do you obtain a valuation? In theory, a valuation can easily be done as the current trading price is widely available, however with divorce proceedings in some instances extending beyond 12 months, timing is imperative. For example, within days of the UK lockdown following COVID-19, the value of Bitcoin dropped 10 per cent but rebounded and then exceeded its pre-COVID price.

Establishing Ownership

If you suspect your partner owns cryptocurrencies the first thing to do is to ask them. Have you seen online records or transactions from traditional bank accounts into online wallets?

Once you have established that your partner may own cryptocurrencies, it is then important to understand what they are and the amount which are held. Bitcoin, as mention above is the most widely recognised from of crypto-asset, but there are hundreds, if not thousands of variations, all trading at different values. One of the potential attractions to cryptocurrencies is their decentralised nature; establishing ownership is notoriously difficult and accounts are anonymous.

How will the court treat Bitcoin?

The evolution of crypto-assets in the Family court is still in its infancy. Although the court have wide powers as to how to treat assets on divorce, the anonymous nature and huge price variations make them incredibly tricky.

In effect, crypto-assets are treated in the same way as traditional assets such as cash, shares, gold, or cars and can be subject to the same types of order available in respect of those assets in the Family Court. The court can therefore make freezing injunctions to prevent sale or dissipation and property adjustment orders to transfer assets between parties, although the effectiveness of these orders is questionable if they cannot be enforced.

A court may deal with crypto-assets by ordering the crypto-asset owning party to retain those assets and awarding the other party a greater share of the ‘copper bottomed’ assets, such as property or cash.

Over the next few years, Bitcoin and other cryptocurrencies are likely to continue to grow in popularity. They are beginning to be used as part of legitimate business activities, and it will be interesting to see how the court grapples with the issues above.

This article was written by Chris Salter, Associate in the Family Team.

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