As of 2024, an estimated 500 million people own crypto – that is 6.8% of the world’s population. It is an asset we are seeing increasingly when we are supporting clients through their divorce, presenting unique challenges for separating couples and lawyers alike.
Cryptocurrencies are digital currencies and are property. It is not physical money and is stored as data in a digital wallet – there is no bank statement or ledger to cross reference. Each wallet has a public and private key. The public key acts as a receiving address, and the private key grants access to the funds held within.
What Disclosure Needs to be Provided?
Digital assets such as crypto are required to be disclosed by the party holding them, the same as any other asset whether property, bank accounts, shares, pensions etc. They should appear in a parties financial statement (Form E) along with the voluntary provision of the following supporting information and documents:
- Transaction records for online exchanges and platforms
- Wallets addresses and public keys for tracing
- Information as to whether they are held by the individual, custodian or an exchange
Crypto is by its nature a volatile asset, valuations will be expected to be provided and updated in a proportionate way (i.e. to be updated on hearings / for real time negotiations) and real time valuations can be obtained on exchange websites such as Coinbase and Binance which show present current and historic trading prices.
Consideration has to be given to exchange fees and CGT, which must be factored in to any settlement, and specialist advice is often required to assist with those calculations.
How Will the Court Deal With the Assets?
In much the same way as other assets, with the court’s objective to achieve fairness and to do so all assets must be disclosed and fully understood.
There are often arguments at play about how crypto should be treated.
- Non-matrimonial i.e. if acquired before marriage will likely be treated as non-matrimonial unless needs suggests otherwise.
- Gains from investments over time – if during the marriage this would generally mean the gain is subject to sharing.
- Inheritance / Gifts – may be treated as non-matrimonial unless mingled with marital funds or used to purchase crypto in either spouse’s name.
- Source – if the source originates from joint funds, likely to be crypto
The court can offset the value of a crypto wallet with other assets and this may be appropriate in circumstances where one party wishes to keep the digital assets or the other party has no interest in them and so the non-holding party would be paid by way of offset against another assets / lump sum.
The court can transfer crypto in specie however this would be fact specific and dependent on whether the non-holding spouse wishes to receive the asset in this form.
Alternatively, the crypto could be sold, and the proceeds divided appropriately between the parties.
While courts often aim to spread the risk when looking at the division of each asset class on divorce, this may not be possible or appropriate for a spouse who is not digitally or financially savvy and would not know what to do as a crypto asset owner.
Protecting Crypto Assets
We are seeing an increase in clients wishing to enter into pre/post nuptial agreements to ring fence digital and other assets as part of their wealth protection planning but this will require clear drafting to ensure that the protection intended can be achieved.
Cryptocurrencies present unique challenges within divorce proceedings, and their impact on financial settlements will only grow as digital assets become more mainstream. Whether you are protecting your digital investments, seeking disclosure of hidden assets, or pursuing a fair division of marital property, a sophisticated understanding of both family law and digital finance is essential. Contact us to discuss how we can help you navigate divorce and separation.
