Paul Wild and Alexandra Hawkes explore the emerging world of digital currency, employing their combined experience with cryptocurrency in divorce. If either you or your spouse have cryptocurrency assets, contact us.
Cryptocurrency is no longer just a niche interest; it is a growing asset class that can add significant complexity to divorce proceedings. With values that can fluctuate vastly and transactions that may be more difficult to trace, cryptocurrency brings unique challenges to divorce proceedings. Understanding the asset and what that value might be is becoming essential for navigating modern financial disclosure.
Beginner Jargon Explained
If you are new to cryptocurrency, you may come across terms that seem confusing. Here are some of the most common ones:
- Wallets: A tool for storing cryptocurrencies. Wallets can be digital (online or app-based) or physical (such as a USB-like hardware device).
- Exchanges: Platforms where cryptocurrencies are bought, sold, and traded; similar to stock exchanges.
- Fiat: Traditional government-issued currency, such as GBP or USD, used to buy or sell cryptocurrency.
- Blockchain: The technology underpinning cryptocurrencies. It is a decentralised ledger that records all transactions publicly, i.e. is not controlled by a single entity, such as a bank, company, or government. Instead, it operates across a network of computers spread around the world.
- Private Key: A secure code that allows access to a cryptocurrency wallet. Losing this key often means losing access to the assets. DO NOT disclose this under any circumstances, it is the equivalent of your PIN.
- Tokens or Coins: The digital asset, referring to the unit of virtual currency. Most famously Bitcoin (BTC) is a token, and Ethereum (ETH).
Understanding Cryptocurrency in Divorce
Cryptocurrencies are ‘property’ under the law of England and Wales [Property (Digital Assets etc) Bill 2024], and therefore are subject to consideration in divorce proceedings, the same way your other assets and property would be. The difference lies at the practical level.
On a basic level, much of cryptocurrency trading can be explained as being comparable to the buying, trading, and selling of a more familiar financial vehicle such as Stocks and Shares. Both cryptocurrencies and shares may be traded, e.g. on the Stock Exchange, and their financial worth are likely to change on a daily (if not millisecond!) basis, so the value may change drastically without the investor having actively bought, traded or sold assets.
Cryptocurrency does however differ from traditional assets like bank accounts or shares. When it comes to disclosure of your assets in divorce (see our article on Forms E), unlike these more conventional assets, cryptocurrencies may not always have readily available statements for valuation purposes. However, full and frank disclosure of holdings in cryptocurrency must be provided. How cryptocurrencies are stored – whether in a digital wallet, on an exchange, or even offline in a hardware wallet – determines the ease with which they can be traced and valued.
Some exchanges and wallet providers now offer detailed transaction histories and statements, but this is not universal. Coinbase, for example, now offers users the option of downloading monthly statements, whereas Crypto.com’s standard features presently only enable users to export their transaction history. Some trading accounts have to have transaction histories specifically requested, so you should leave good time for these to be requested and received from the provider. In cases where statement documentation is unavailable, uncovering and assessing the value of cryptocurrency holdings can require expert assistance.
Challenges in Valuing Cryptocurrency
Cryptocurrency’s volatility poses an additional challenge. The value of a crypto asset like Bitcoin can fluctuate dramatically in real time. This makes agreeing on a fair valuation during financial disclosure crucial, and timing may play a significant role in negotiations. It may be wise to consider a settlement which is determined as a percentage of the crypto holding, rather than a fiat or crypto value, or if one party is retaining the whole crypto portfolio it will be vital to have an agreed, up-to-date valuation to use in offsetting calculations.
If you are the holder of the cryptocurrency, you may well be asked to cease trading during your divorce proceedings. It will also be vital that you keep track of your trading history, transfers, and values of your investments.
If you have concerns that your spouse who holds crypto is not providing full disclosure, we may be able to investigate further. Comprehensive forensic analysis of bank and credit card statements is likely to display transfers into and out of crypto exchanges, which should marry up to the disclosure they have provided.
Experts may be instructed to provide such valuations, however they tend to be expensive, costing multiple thousands of pounds. If you have a large portfolio of such investments, it may be worth hiring a forensic accountant.
Pre-nuptial and Post-nuptial Agreements
You may not be considering divorce but still wish to protect your crypto assets. Whilst not legally binding in England and Wales, pre- and post-nuptial agreements may be the way to go to separate your crypto investments from the marital pot. Contact us to see how we can assist with this.
How We Can Help
At Herrington Carmichael, our team is experienced in handling the complexities of financial disclosure, including cryptocurrency. We’re here to assist in ensuring all assets are properly disclosed, valued, and considered in your divorce settlement.
If you would like tailored advice on how cryptocurrency may affect your divorce, contact us today.
