Consideration of crypto-assets during divorce

21st April 2022 Family Law

Approximately 2.3 million people in the UK own a crypto-asset. Crypto-assets are no longer ‘niche’ investments for the few, they are in the mainstream and are here to stay. They can include crypto-currency (for example Bitcoin), non-fungible tokens (known as NFT’s) and many other types of virtual asset. 

It is therefore only a matter of time before these issues become more common in divorce proceedings. Crypto-assets have properties that are fundamentally different to the assets family lawyers are used to dealing with and they are likely to cause complications. Special consideration needs to be given when virtual assets are involved and obtaining specialist legal advice is essential which JMW are able to offer. 

I have set out below just a couple of issues where crypto-currency has the potential to challenge the current divorce process.  

Disclosure 

The usual first step when considering the division of assets within the divorce process is the exchange of full and frank financial disclosure with your partner. It is not possible to accurately advise on a divorce settlement without knowledge of what matrimonial assets you and your partner own.

Recent case law has found that crypto-assets are to be treated as ‘property’ under the law of England and Wales. It is therefore likely that assets of this nature will be dealt with by the Court in a similar manner to other assets, such as your family home or a savings account. For this reason, any crypto-assets owned by you or your partner should be disclosed in full. 

The difficulty that arises is that crypto-assets don’t have a physical presence. All crypto-currency is held on the ‘blockchain’, a decentralised ledger, and as such, owners are able to secure anonymity. This makes them difficult to trace/easier to hide and therefore extremely attractive to someone intent on providing a false impression of their financial position during the divorce process. JMW have strong contacts with forensic investigators who can assist with this tracing.

It follows that a party may also be looking to dispose of crypto-assets to distort their financial position. Your partner may think that by selling their crypto-currency without your knowledge, they won’t have to account for this in the overall financial settlement. If so, consideration might be given to freezing your partner’s virtual investment portfolio until the conclusion of the financial remedy proceedings. This can be done by way of an application to the Court and will ensure your partner cannot deplete assets before your interest in them is realised. 

Lawyers will need to remain vigilant as to the existence of these assets, and the instruction of an appropriate expert to forensically analyse a financial situation will often be required. The disclosure process will need to be given additional consideration and further enquiries made.

Valuing assets

Once the disclosure process is complete, it is important to place a value on each matrimonial asset. The parties are often encouraged to agree the value of assets, however if this is not possible, an expert can be instructed to provide a valuation. For example, it may be that the parties cannot agree the value of the family home. In this instance, a surveyor can be instructed on a joint basis to provide the parties with a figure to be used in ongoing negotiations. 

The difficulty with crypto-assets is that their value can fluctuate wildly over a short period. This can change from day to day and the market is significantly more volatile than the majority of other investments. It was recently reported that John Terry’s collection of NFTs had plummeted in value by 90% in the space of just one month. The implications of this on divorce proceedings can be catastrophic. A proposal to settle can go from being generous, to being grossly unfair in a short period of time. 

When crypto-assets are involved, lawyers will need to act quickly to any change in the market, and be aware of how this can affect the division of assets. Expert reports can be obtained to assess the value of crypto-assets, but it is clear this needs to be under constant review. The current political situation will only lead to further instability.  

Conclusion 

The nature of cryptocurrency can be difficult to assess and the landscape is constantly evolving. It is essential to know what options are available in good time to ensure you receive a fair division of assets following a divorce. JMW are a full service law firm who can assist with a variety of issues when considering crypto-assets. If you have any queries or concerns regarding the above, please do not hesitate to contact us. 

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Ashley Landes is a Solicitor located in Manchesterin our Family department

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