Cryptocurrency and Divorce

Although the concept of cryptocurrency may seem daunting and perhaps overly risky to some, there is no denying that interest in the cryptocurrency world is on the rise.

With the increase in popularity of cryptocurrency in recent years, it has become a consideration for separating couples and a hot topic amongst Family Lawyers.

What is cryptocurrency?

Cryptocurrency is its own distinct asset class. It is a virtual or digital currency that can be used as money in exchange for goods and services or retained as a form of investment. A cryptocurrency “coin” or “token” has no physical form. The coins are assigned a number, the “public key”, like a bank account number that is held on a database that records the transfers of that number from one user to another. The database that records and verifies the transfers is called a “blockchain”, a decentralised network system accessible to anyone with an internet connection, rather than a centralised system – e.g. a bank. Popular cryptocurrencies include – Bitcoin, Etherium, Tether and Bianance Coin, to name a few.

How is cryptocurrency dealt with in terms of divorce?

Cryptocurrency is deemed as an asset in Scotland and is treated like any other assets on divorce. The first question will be whether the cryptocurrency is “matrimonial property”. If it was acquired by the parties from their own income and efforts during the marriage and was in existence at the date of separation, it will likely form part of the matrimonial assets to be divided between parties on divorce. If the cryptocurrency was gifted from a third party or inherited, it may be excluded from the matrimonial property.

Scots family law provides that the matrimonial property should be shared fairly between parties. There is a presumption that fairly means equally, unless there are any special circumstances arguments to justify a move away from equal division. Parties have the option to transfer, sell, divide or retain cryptocurrency as part of any overall division of the matrimonial property. Before that is possible there are the following considerations to be considered:

Identification of cryptocurrency

If you suspect your spouse has cryptocurrency but you are unaware of the details or figures involved, the first issue that may present itself is identifying cryptocurrency. Cryptocurrency can be held via a digital exchange, or digital wallet. The Wallets hold “private keys”, the sequence of numbers and letters that correlate with to the amount held in the account ledger. The digital wallet provides records of what cryptocurrency is held by your spouse, the trading they have undertaken and the value or the cryptocurrency held. However, cryptocurrency can also be held offline as a series of codes, which could be kept on a piece of paper, USB stick, hardrive or other form of medium which may make it very difficult to identify.

If you are concerned that your spouse has not disclosed details of their cryptocurrency, steps can be taken to recover this information. We would suggest that you make notes of any reference your spouse has made to cryptocurrency, keep copies of any correspondence you have that makes any reference to cryptocurrency,  review any bank statements for large payments to unrecognised accounts or to cryptocurrency exchanges and check any safes, or safe places, for any paper, USB or other offline ledgers.

Valuation of cryptocurrency

Once any cryptocurrency has been identified, information will be required to determine its value at the date of separation. Cryptocurrency units, like stocks and share, each have a value attributed to them. However, values can fluctuate significantly in short periods of time and providing a screenshot of the value at a certain date will not be sufficient for divorce purposes. You should instead either seek to recover, or if you hold the cryptocurrency – provide, a clear breakdown of the transactions from your/your spouse’s wallet, a breakdown of the transactions from the trading platform,  confirmation of the type and amount of cryptocurrency held at the relevant date, list of public keys and valuations of coins/tokens (online valuations are possible).

Division of cryptocurrency

As above, cryptocurrency can be transferred, sold, divided and retained on divorce. Given the volatility of cryptocurrency it may be best to consider it as a separate to your other matrimonial assets. Using cryptocurrency in offsetting any division of assets should be treated with caution and the risks for the party retaining or receiving cryptocurrency should be taken into account.

Conclusion

If you, or your spouse, are separating and one of you have, or you suspect the other of having, cryptocurrency and you would like to discuss, please speak to one of our experienced members in the Family Law team.