Bitcoin is one of the most popular types of Cryptocurrency and was first founded in 2009 and is believed to be the first type of cryptocurrency. The rise of Bitcoin and other cryptocurrencies such as Ethereum, Binance and Elon Musk’s favourite Dogecoin have become increasingly popular and they can add a layer of complexity to the division of assets in divorce settlements.

What is Bitcoin?

Bitcoin is a form of Cryptocurrency. Cryptocurrency put simply is digital or virtual money that doesn’t exist physically. It is not governed by a bank or regulated. It can be used like regular money to pay for goods and services or kept as an investment and it can be sent anywhere in the world. All cryptocurrencies are held digitally in a wallet which can be online, on a smartphone, through a software program or on a personal hard drive.

Every transaction ever made with Cryptocurrency is recorded on a huge database known as a blockchain; it’s like a huge spreadsheet. The blockchain records every transaction and it’s said to be tamper proof. There is nothing tangible and due to its anonymous nature, even though the transactions are recorded in the public ledger, Blockchain, it is difficult to identify the owner without the private key.

Is Cryptocurrency an asset that the court will consider in the context of divorce proceedings?

Cryptocurrencies are classified as “property” in England and Wales. This means that they can be transferred between parties in divorce proceedings and sold. The court can make an order for property adjustment order under s.24 of the Matrimonial Causes Act 1973 to enable the transfer or sale of the Cryptocurrency to take place. Locating the Cryptocurrency may not be without its challenges. 

Instead of selling or transferring Crypto, another option is to identify the value and include this in the computation settlement on divorce. Cryptocurrency can fluctuate and is volatile in nature which makes it difficult to determine the exact value. 

Disclosure in financial remedy proceedings

Both parties have a duty to provide full and frank disclosure of all of their finances, this includes Cryptocurrency. Failure to provide such disclosure may be deemed a conduct issue within financial remedy proceedings and an award made more favourable to the deceived party. They should be disclosed within Form E.

Where to find evidence of Cryptocurrency

1. Bank and credit card statements – look for transactions to platforms which assist in the investment of Cryptocurrency.
2. Whether any apps have been installed on their phone that can be linked to Crypto investments e.g. OKX, Crypto.com
3. Discussions with family or friends and even with yourself about investing in Crypto.
4. Evidence in income stream such as a Tax return

Where evidence cannot be found but you still feel your partner has Crypto they have not shared, then a forensic accountant who specialises in cryptocurrency maybe able to try and trace the investment. Proportionality of costs in pursuing will need to be considered.

Five important things to think about when dealing with Cryptocurrency in divorce proceedings

1. Given the volatile nature of Crypto, using up to date valuations is extremely important when negotiating a settlement. 
2. If there is going to be a transfer on financial settlement, then you will need the wallet address for the person who is to receive the Crypto and consider who will pay the fees.
3. When cashing out, will it be transferred then cashed out or just cashed out? You will need to consider the tax consequences and who will pay for the fees.
4. When offsetting, value the Crypto as close to settlement as possible or take an average over a year and again factor in the tax consideration.
5. Get Tax advice at the outset as to how best to mitigate the tax position and consideration of the new CGT rules. Again, you will need to agree on who is going to pay the tax and factor it into the settlement. As cryptocurrency is considered property it is taxable and subject to capital gains tax. If the value at the time of the sale or transfer is more than the purchase price, you will incur a capital gain. For higher rate taxpayers this can be as much as 20%. 

If you would like advice and support regarding your divorce and/or financial settlement contact our Family Law team. We offer an initial Fixed Fee meeting which gives you an hour with a specialist family lawyer - click on the link below to find out more. Call 0330 0945 500, email family@nevesllp.co.uk  or complete our Contact Form and we'll get back to you.