14 April, 2021
Cryptocurrency came into existence not long ago with the most popular, Bitcoin, coming into existence on 3 January 2009 by the mysterious Satoshi Nakamotu. To this date, no-one knows exactly who this mystery person is. It began with mining block zero which has a reward of 50 bitcoins and here sprang a new age. Bitcoin is the commonly known cryptocurrency, however there are many other cryptocurrencies in existence, including Ethereum, Litecoin, Cardano, Polkadot and many more. Cryptocurrency is seen as a risky investment that may or may not pay off. It is unpredictable and volatile, meaning that value can increase and decrease in a short period, the net effect being that the value could drop suddenly, causing significant loss to the cryptocurrency owner. It is seen as a high-risk asset that should not be owned by those that cannot afford to lose it.
The benefit to cryptocurrency is that there is no middleman, no bank and it is not tied to any country. It is held under a secure digital wallet and exists in a cloud or on a user's computer. It is made easy to transfer values anywhere and allows you to take control of it. One Bitcoin today is worth in the region of £41,131 sterling. Cryptocurrency should, if owned by either one or both parties in divorce, form part of their financial settlement. Cryptocurrency does not escape the duty of both parties in divorce proceedings to provide full and frank disclosure and can be potentially divided up by a court.
It is often heard that one party tries to hide their assets from the other, both from one spouse to the other, and cryptocurrency helps to make that an easier process and the manner in which it is held. It is not impossible for a spouse to challenge this. As with all financial remedy proceedings, the non-disclosing party can be in contempt of court, leading to sanctions such as imprisonment and cost orders.
Again, as with other assets, without full and proper disclosure a court can be asked to draw inferences from the information that is available.
Money is held within a block chain and is largely anonymous. Therefore, it is hard to trace although tracing back to when money has been transferred through a cryptocurrency exchange would place a spouse in a strong position in proving the use of this mysterious asset. It is important to seek disclosure beyond the usual 12 months to try and trace back such investments. There is, of course, a cost to such deep analysis and the cost of that must always be weighed against any benefit.
It is important to remember that cryptocurrency changes value on a daily basis, similar to that of shares, and, therefore, this can make it a difficult process to value and negotiate with and each day may provide a very different outcome to the next. This does not prevent any judge from determining a value for the purpose of any financial settlement.
As with all financial remedy proceedings, it is best for all parties to provide full and frank disclosure to make the process easier, open and honest. It is not helpful to either party to attempt to hide any assets which would, in effect, lead to longer, more stressful, and costly court proceedings.
Over time, digital currency is likely to become more frequent and such investment should not be ignored.
Bitcoins can be divided and transferred. Parties should not be lured by high value and must always remember that they are a volatile investment and should consider what the impact is of such a risk in finalising any financial division.
For more information contact Rubina Vohra in our Family/Divorce department via email or phone on 01254 580 000. Alternatively send any question through to Forbes Solicitors via our online Contact Form.