Cryptocurrency (or crypto currency) consists of encrypted digital forms of currency not distributed by banks. A popular example of a cryptocurrency is Bitcoin but there are others such as Litecoin, Ripple, Ethereum, Zcash, etc
As cryptocurrencies become more commonly used around the world, so too will their appearance in family law property settlements.
This article provides guidance on how you can ensure you receive a fair share in your family law property settlement.
Cryptocurrency included in the asset pool
Both spouses have an obligation to make full and frank disclosure of their financial circumstances. Cryptocurrencies are defined as property under Australian law, and as such are important to disclose during the process of finalising the financial severance of parties separating.
Discovery of one party’s interest in cryptocurrencies is presenting a big challenge to family lawyers. Unlike bank accounts, ownership of a cryptocurrency is not as obvious. Bitcoin records cannot be subpoenaed, and any records of ownership are usually stored digitally in a person’s mobile or other device.
Cryptocurrencies don’t send out statements, are not usually stored on hard copy or easily accessed by other parties. However, as all cryptocurrency is initially acquired through the use of traditional currency, the ownership of bitcoin may be traced through bank records and transactions related to the acquisition of cryptocurrency. The only exception to this is if the party has been gifted cryptocurrency or paid in cryptocurrency for goods or services.
What type of cryptocurrency documents can be included as part of the discovery process?
- Screenshots showing the current balance of each cryptocurrency in a digital wallet, exchange, or cryptocurrency account and ledgers of all transactions for each crypto wallet, exchange, or account.
- Copies of bank and credit card statements reflecting transactions for each wallet, exchange, or cryptocurrency account and copies of any brokerage account statements.
- Lists of purchases of goods and/or services through the use of cryptocurrency.
- Emails containing cryptocurrency transactions. These emails also will show a time and date stamped trail of the amount and conversion rate.
How to value Cryptocurrency for a family law settlement
Like other currency, cryptocurrency has an exchange rate which can be used to convert the cryptocurrency into dollars. The value of cryptocurrency is volatile and can fluctuate dramatically. Its value can drop by 20% in just a few hours or increase by 98% in one year. This can make valuing cryptocurrency a difficult task for the purposes of a family law settlement. Generally it is easier for crypto assets to be converted into cash first and then contributed to the asset pool. If this is not possible or desirable then the volatility of the asset value may need to be factored into consideration of the division of assets.
Cryptocurrency can potentially be treated as a notional ‘addback’, where the value of the asset is ‘added back’ into the property pool. The case law surrounding this concept stems in part from examining the ‘source’ of the funds used for expenditures such as legal fees or in this case cryptocurrency purchases. If the funds existed at the time of separation, both parties can be seen as having an interest in the way they were used post-separation and they should arguably be ‘added back’ to the pool.
It is clear from this article that family law property settlements will become more complicated as cryptocurrency ownership becomes more common in Australia. Regardless, during family law proceedings and property settlements, each party has a duty to disclose ‘any vested or contingent interest in property’ and ‘any other financial resources’ which includes cryptocurrency.
If you are concerned that your partner may be hiding their cryptocurrency details from you, we recommend you speak to an experienced lawyer who can help you access this information to ensure you receive a fair settlement.
If you or someone you know wants more information or needs help or advice, please contact us on (02) 9955 6692 or email [email protected].