How to deal with crypto assets in divorce

As cryptocurrencies have become more mainstream, they are increasingly playing a role in divorce and financial remedy proceedings.

Some people invest in crypto as part of their portfolio; others use it to try to conceal wealth. Whatever the reason, they must be disclosed in financial proceedings just like any other asset.

Failing to properly deal with crypto can have serious financial and legal consequences.

What are crypto assets?

Crypto assets, including well-known examples like Bitcoin, Ethereum and Solana, are digital tokens that use blockchain technology. They can be bought, sold, held in wallets, transferred across borders, or used in online transactions. These assets exist outside the traditional banking system, which can make them harder to track.

What makes them work is the blockchain – a type of digital ledger. It records every transaction involving a cryptocurrency in a secure and transparent way. Each transaction is stored in a “block”, and those blocks link together to form a permanent, chronological “chain”. The key feature is that it’s decentralised – no single person or authority controls it – and once a transaction is recorded, it is extremely difficult to alter or delete.

Because of this, blockchain records can be useful in legal proceedings to verify the existence and movement of crypto assets. But identifying the actual person behind a crypto wallet can be tricky, especially if someone is trying to conceal what they hold.

Finding crypto assets in divorce proceedings

Finding crypto assets can be challenging, especially if the other party isn’t forthcoming. However, there are ways to uncover them:

• Bank statements may show payments to crypto exchanges like Binance or Coinbase.
• Tax returns might list capital gains or crypto income.
• Emails, documents, or digital wallets on phones or computers could contain wallet addresses or account confirmations.
• Transaction histories or wallet data may be uncovered through forensic IT investigations.

What happens if someone tries to hide crypto?

If a party suspects that crypto is being concealed, there are legal routes available:

1. Court orders can compel the disclosure of crypto holdings and trading history.
2. Search orders or forensic examination may be appropriate in some cases.
3. The court can draw adverse inferences against a party who refuses to disclose.
4. Freezing orders may be granted to prevent dissipation of crypto funds.

Deliberately hiding assets in divorce is not only dishonest but also if later discovered, it can lead to a financial order being set aside and costs awarded against the dishonest party.

How are crypto assets valued?

Valuing crypto is complex due to its volatility. The general approach is to:

• Identify the type of asset, e.g. Bitcoin, non-fungible token (NFT).
• Calculate its value in GBP based on the market rate at a specified date (often the date of hearing or agreed valuation date).
• Take into account exchange fees, withdrawal limitations, and potential tax implications.

Some parties agree on a value between solicitors, whereas others require input from forensic experts, especially when the crypto holdings are substantial or highly volatile.

What are the difficulties with valuation?

There are several complications when valuing crypto assets:

1. Extreme price volatility – values can change dramatically in hours.
2. Multiple wallets or exchanges – holdings may be spread across platforms or stored offline.
3. Thinly traded assets – obscure tokens may have little real-world liquidity.
4. Decentralised finance (DeFi) products – some holdings are locked in decentralised finance systems or smart contracts that are hard to assess.

Valuing crypto requires an up-to-date knowledge of the market and a sophisticated understanding of how these assets work. Misjudging value can lead to an unfair division.

What are the practical difficulties in dealing with crypto?

Even once discovered and valued, crypto can be tricky to divide. There may be technical barriers, as transferring crypto safely requires knowledge of wallets, keys, and blockchains. Mistakes can result in irreversible loss, meaning security risks are high. Additionally, selling or transferring crypto can generate capital gains tax, which needs to be factored into any settlement. If the holder refuses to transfer crypto or hides it in untraceable wallets, enforcement becomes highly challenging.

The cost of getting it wrong

Mishandling cryptocurrency in divorce can have significant financial and legal repercussions.

1. Assets may be missed, resulting in unfair settlements.
2. Improper valuation could disadvantage one party significantly.
3. Non-disclosure or dishonesty can lead to penalties, cost orders, and even the overturning of a financial order.
4. The court may infer hidden wealth, resulting in awards against the concealing party.

If you believe crypto assets may be part of your financial proceedings on divorce, whether you hold them or suspect your spouse does, a lawyer can help ensure full and proper financial disclosure and help you protect your financial position through the appropriate court applications.

If you have questions or concerns about crypto and divorce, please contact family lawyer Victoria Furlong.