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Cryptocurrency on Divorce

21/03/2022

Daniel Green explores some of the issues and complexities when cryptocurrency is an asset in a divorce.

Separating couples have plenty to think about when dividing their assets upon divorce. Thoughts of houses, pensions and lump sum pay-outs often spring to mind when thinking about a “divorce settlement”. The Family Court must consider all assets in the marriage before making a Financial Remedy order. At Levison Meltzer Pigott LLP we see assets in all shapes and sizes; pieces of art, fine jewellery, international property portfolios, company shares, luxury cars and much more. However, in this digital age we are seeing a rise in cryptocurrency assets forming part of the marital asset pot.

What is Cryptocurrency?
Most of us will have heard of Bitcoin – the cryptocurrency with the largest market value – and probably wished we had bought some when we first heard about it! But what exactly is it?

Cryptocurrency is in essence a digital asset.

As defined by HMRC, “Cryptoassets (referred to as “tokens” or “cryptocurrency”) are cryptographically secured digital representations of value or contractual rights that can be transferred, stored, or traded electronically.”

They are capable of being bought, sold, and traded online across many platforms. Despite often being referenced as “coins” there is no tangible asset because all cryptocurrencies are held digitally whether in an online account, via a third-party platform, or held on a physical storage device such as a USB. The values of cryptocurrencies are often influenced by the supply and demand of each “coin” unique to that cryptocurrency., Due to the trading of these assets being unregulated by any financial authority, they are susceptible to volatile changes in values not seen in the stock market.

How is Cryptocurrency treated within divorce?
Cryptocurrency is treated like any other asset by the Family Court. Parties must produce full and frank financial disclosure as part of their financial remedy proceedings, inclusive of cryptocurrency, alongside the more traditional assets such as properties, shares, bonds and savings accounts. The fact that cryptocurrency is not mainstream yet, particularly in the divorce arena, is not an excuse to exclude these assets from a divorce settlement.

How do I know if my spouse has any Cryptocurrency?
It is not uncommon for cryptocurrency to be held on third-party trading accounts which may not be obvious to the lay person when reviewing a bank statement. At Levison Meltzer Pigott LLP we work alongside industry leaders in tracing and locating hidden cryptocurrency accounts and online digital “wallets” that are not explicitly disclosed initially.

By way of a helpful tip, the leading cryptocurrency exchanges in the UK are currently Coinbase, Binance, and Etoro.

How is Cryptocurrency divided on divorce?
As with all settlements, the full financial landscape of the parties will be taken into account, including cryptocurrency, as per Section 25(2) of the Matrimonial Causes Act 1973 . The court can order the payment or transfer or cryptocurrencies by way of a lump sum award. However, it is complex and not without risk. The volatile nature of cryptocurrency can make it more difficult to attribute a fixed value in £ as prices can, and do, change drastically in the space of hours. It is not unheard of for modest investments to make millions in the space of a matter of months and for millions to dissipate to almost nothing overnight – this is known in the crypto-world as “pumping” or “dumping”.

It is therefore important that you take the best advice possible when dealing with cryptocurrency as part of your divorce settlement. Please do not hesitate to contact a member of the LMP team if you have any questions or would like advice regarding cryptocurrency, or any other assets, upon separation from your spouse.

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