In an increasingly digital world, cryptocurrency investments have emerged as a new frontier, bringing unique challenges for dividing assets within family law settlements. In this article our team of experienced family lawyers delve into the realm of cryptocurrencies, shedding light on their nature, the intricacies of handling them in family law matters and the hurdles that accompany such investments.
Is Cryptocurrency Considered ‘Property’ in Family Law?
Traditionally, property has referred to tangible assets, shares, choses in action, chattel, or cash funds, as some examples.
The Family Law Act at section 4 states:
- in relation to the parties to a marriage or either of them – means property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion; or
- in relation to the parties to a de facto relationship or either of them–means property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion.”
Cryptocurrencies are a new form of digital currency with distinct features separating them from traditional forms of currency. They are considered property for the purposes of Family Law, and they hold monetary value.
Background – What is Cryptocurrency?
For starters, cryptocurrencies differentiate themselves from traditional currencies because they are decentralised rather than being controlled by central banking institutions, and each cryptocurrency transaction is recorded on a ledger, known as a blockchain, which is then verified by other blockchain users in exchange for a fee. There is no physical currency that is exchanged between parties. Still, each exchange is digitally recorded on the blockchain with the balance of a party’s interest in the cryptocurrency and a history of transactions stored on a ‘wallet’, which will be discussed below.
There are different blockchains, with different rules governing each chain and different verification mechanisms used on each blockchain. The same currency may be traded on different blockchains, and each chain may have its fees associated with each transaction. Complicating matters is that users may have multiple wallets, hold multiple currencies, and transact using multiple platforms, making tracing and discovering cryptocurrencies challenging for parties in Family Law.
Challenges and Implications with Cryptocurrency in Family Law Settlements
Difficulties arise because the cryptocurrencies are also stored in several ways, for example, some of these include:
- offline in paper wallets known as ‘cold wallets’;
- using a ‘hosted wallet’ whereby a platform hosts a user’s wallet and allows the user the ability to log in, similar to the way they do to a banking institution to transact using cryptocurrencies; and
- using a hardware wallet such as on a USB-like device where the user is required to enter a pin to transact using the funds held on the wallet.
In family law, each party has a duty of disclosure concerning their financial information. Cryptocurrencies are assets that must be recorded in Financial Statements, on Balance Sheets, and in disclosure provided to other parties. Failure to do so may result in Orders being set aside based on non-disclosure or adverse inferences being drawn against the non-disclosing party.
Cryptocurrencies represent a challenge for parties whose spouses have cryptocurrencies because there is no centralised institution that can be subpoenaed to obtain information relating to how much cryptocurrency a person holds, nor is there a centralised mechanism for establishing how the funds are stored, where they are located, which chain they are on, and the address of the wallet(s) belonging to a party.
It is essential to know that if your spouse has cryptocurrency, requests for disclosure must be made from them as to their interests in cryptocurrencies – more specifically, transaction ledgers, wallet addresses, and balances for each currency they hold. Providing this information can be relatively straightforward insofar as it requires a party to export their transaction histories from their wallets simply, and to provide further particulars as to the cryptocurrencies as requested, however it is difficult for parties (including the tax office) to trace cryptocurrency transactions or accounts because there are no names associated with each wallet in the event of non-disclosure.
Cryptocurrencies have also been in the news for the past five years because of their dramatic increases and falls in price. Until recently, cryptocurrencies such as Bitcoin, Ethereum, Polkadot, Ripple, and Dogecoin have been rising significantly, but given the current state of the world economy, they have also been suffering dramatic falls in their value. Depending on the size of the matrimonial asset pool and the quantum of the funds held in cryptocurrencies, this may represent a significant part of family law proceedings for some matters.
Consideration must also be given to the fact that capital gains tax issues arise for parties that retain cryptocurrencies when they are sold. For that reason, consultation with an accountant may be required to calculate the capital gains estimated so that they can be reflected on a balance sheet or taken into account as part of an overall property settlement.
HOW WE CAN HELP YOU NAVIGATE CRYPTOCURRENCIES IN FAMILY LAW PROCEEDINGS
If you or your spouse holds cryptocurrencies, it is crucial to inform your lawyer promptly. At Ramsden Family Lawyers, our experienced team is well-versed in handling complex family law matters related to cryptocurrencies. We will skilfully navigate the legal landscape on your behalf, ensuring that the necessary requests for disclosure are made to obtain vital information about your cryptocurrency interests.
Don’t let the complexities of virtual assets hinder your rights during the settlement process. Trust our expertise to safeguard your interests and secure a fair resolution.
Contact Ramsden Family Lawyers today and empower yourself with the knowledge and support needed to navigate this digital frontier effectively.