Digital Era And Cryptocurrencies Bring New Issues For Divorcing Spouses And The Courts

Sorting out the finances when it comes to divorce can be a painful and tricky process, especially in cases where the assets are virtual, complex and liquidity is an issue, says Sarah Crilly, a partner in the Family and Matrimonial team at Ward Hadaway.

The rising popularity of cryptocurrencies as investments are presenting divorce lawyers with a new challenge when it comes to dividing up a couple’s assets.

With more people’s assets involving a currency that is both hard to value and also hard to trace, the divorce process can become more expensive as well as time-consuming. This process can take the best part of a year if the matter is going through a court process and sometimes even if parties are proceeding on a voluntary basis.

Given the nature of divorce and the lawyers’ desire to protect their clients – both parties tend to assume the other may be lying or hiding assets or even playing down their true value. A large part of the time it is straightforward as lots of information can be gleaned from parties’ bank statements, employers, the Land Registry and Companies House as well as accountancy evidence.

However virtual currencies such as Bitcoin, litecoin, ripple and Ethereum are a new challenge for lawyers as they are plagued with not only issues of valuation but also traceability. Lawyers need to equip themselves with knowledge of the asset as they need to understand what they are trying to trace and value.

While parties have a duty to provide full disclosure of their assets in a divorce, the anonymous nature of cryptocurrencies can potentially make them appealing for spouses wishing to hide money from a partner.

If one side decides not to disclose or provide evidence of their holdings in cryptocurrencies, the divorce process could then result in one party failing to get a fair share of assets. This can amount to a lot of money because judges generally, depending on the length of the marriage, order a 50-50 split of assets.

“Cryptocurrencies traded using an online investment platform or bought with funds from a bank account can be easier to trace and value. When cryptocurrency is purchased directly and moved offline, it then becomes more difficult. There are digital forensic experts who could search through a spouse’s various email accounts to determine what transactions have taken place. However, this is a slow process that can be very costly and disproportionate to the value of the currency itself.”

Lawyers need to ask the right questions from the outset of a divorce.

Cryptocurrencies also bring the problem of valuation. The price can fluctuate wildly within the course of a divorce.

It’s not as straightforward as valuing investments and ordinary shares. There will have to be valuations made throughout the whole period of a case. You would then have to agree a value on the date of the final hearing.

This means that although a partner could have built up a substantial crypto fortune when filing for divorce, it may have diminished by the time of settlement and vice versa. Such price shifts are likely to lead courts to split the cryptocurrency (the risk-laden asset) itself and take their chances selling on an exchange. This way both parties carry equal risk with any copper bottomed safe assets such as property etc also being divided equally.

At Ward Hadaway, we have experience of dealing with cases involving cryptocurrencies and can provide couples with advice on any issues they might have by providing high-level support when times are tough.