Are cryptocurrencies included in divorce settlements?

Since 2017, in particular, we have seen cryptocurrencies skyrocket (and plummet) in value and the lure of potential colossal returns has seen them become an increasingly popular form of investment.

In our Family department, we have a seen a rising level of divorce cases involving this asset class, which begs the question – how do we deal with cryptocurrencies on divorce?

What is a cryptocurrency?

A cryptocurrency is a type of digital currency (which has no physical form) and relies on a secure decentralised network (known as a Blockchain) allowing parties to transact with one another without the need for a third party or middle man (removing the role of a bank, government or other governing body).

Leaving aside the intricacies of the technology itself, for the purposes of financial remedy proceedings on divorce, cryptocurrencies need to be disclosed, valued, and potentially shared on divorce – just like any other asset.

Cryptocurrencies can be held under any pseudonym and can be stored in a variety of ways; a code scribbled down on a piece of paper, held on a USB, in digital wallets ( very broadly similar to bank accounts) and on trading platforms (consider this like a brokerage type platform where you can place bets or trade but where you also can hold an account).

Cryptocurrencies are arguably primed to be hidden (given they are assets which are unregulated, pseudonymous, censorship-resistant and without a controlling centralised body).

How can you find out what cryptocurrencies your spouse owns?

To start with, have you any text message or email or other written evidence from your spouse that discusses cryptocurrencies? If so hang on to it  as this can be relied on as evidence of your reasonable suspicion and the court can order that your spouse disclose details of his or her cryptocurrency holdings (if he or she has not already done so).

There are a number of steps that we at SMB will take to uncover the existence of cryptocurrencies and/or verify the amount of cryptocurrencies your spouse owns including:

1. Checking bank statements/credit card statements – payments made from a bank account or a credit card to a cryptocurrency trading platform or wallet are easily identifiable from the statements themselves (which are disclosable as part of the divorce in any event).
2. Checking the keys (the unique codes) to his/her cryptocurrencies (if jotted down on a piece of paper or held on a USB) – these codes can be inputted to the public key to confirm the size of their cryptocurrency holding.
3. Verifying the digital wallet: cryptocurrencies are often stored in a digital wallet. Each digital wallet has a unique wallet address. The contents of the wallet (akin to a bank statement) can be confirmed independently by inputting the wallet address via a publicly available online search engine.
4. Obtaining a full transaction history from all trading platforms used. A trading platform is a necessary intermediary to buy and sell cryptocurrencies (apart from arranging to meet a seller and buying cryptocurrencies in exchange for cash or another asset). The trade history will show every transaction relative to the account, but most importantly the transaction history will confirm the details of recipient wallets of the cryptocurrencies (and therein undisclosed wallets can be unearthed). This exercise will also confirm the amount of coins held on the trading platform itself.
5. Whilst the trade account name or usernames can be in any pseudonym, a vast majority (if not all) trading platforms require their users to complete KYC identification processes. Thus, even if your spouse held multiple accounts in multiple pseudonyms, all would have been verified by their true identity and therefore traceable back to them.

What should you do if you are unable to find your spouse’s cryptocurrency?

If these searches prove unsatisfactory, there are also experts in digital forensics that can assist with tracing cryptocurrency (albeit they can be expensive). If you do not have any idea of the size or potential value of your spouse’s cryptocurrencies (even after the above steps are taken), the risk is that the cost of the expert might exceed the potential value of the cryptocurrencies.

Provided you know where to look and what questions to ask there are many ways to uncover the existence of cryptocurrencies.

Ultimately, if a spouse is determined to be deceptive and hide assets, they will do so, and investing in cryptocurrencies does not necessarily provide an easier route to achieve this end. If, for example, a spouse asked a third party to set up a bank account in another jurisdiction or created an offshore entity to funnel funds, these are arguably just as difficult to trace as cryptocurrencies bought indirectly and held on a private USB or hidden on a piece of paper buried in the garden.

The risk to a spouse who has hidden assets is that the court can draw adverse inferences if it believes that disclosure is not complete. This can lead to a very generous award in favour of the other spouse (to compensate them for an unknown amount of hidden assets).

SMB’s market leading family practice advises on all aspects of relationship breakdown. Our team of experts combine sensitivity and tenacity with an understanding of how to protect our clients’ interests and ensure the best outcome for all those involved in a family break up.