Divorce and cryptocurrency

Bitcoin is a digital currency created in 2009 which can be used to buy or sell items from individuals and companies that accept Bitcoin as payment, but does not exist as a physical currency.  Bitcoin does not have a central bank and is not linked or regulated by any state.

Despite its erratic nature, the interest in Bitcoin is rapidly growing in England and is now likely to be a far more common asset appearing in divorce proceedings.

Like all assets or currencies, Bitcoin’s price is determined by the amount that people are willing to pay for it. As the value of Bitcoin fluctuates, its value to be considered in divorce proceedings would have to be determined by a judge. The date of valuation could either be for the point in time either at the date of the petition for divorce, or any other date that the judge deems sensible looking at the circumstances of the case.

It is currently unclear precisely what powers the courts have to re-distribute Bitcoin, or other cryptocurrencies, as there is no definitive guidance as to what class of asset they fall into. However, that does not prevent the court from factoring in the value of the asset, whether by accounting for its value in other property, or ordering a cash payment which could be satisfied by liquidating the Bitcoin.

The extra privacy given to Bitcoin holders, as opposed to those who hold money in a bank, has led to many discussions on whether it will be the case that non-disclosers in divorce proceedings will increasingly try to hide assets through Bitcoin. Transactions involving Bitcoin are stored publicly on a network, displaying the balance and transactions of any Bitcoin address. It is the identity of the user behind the address that can be difficult to find as this remains unknown until the information is revealed, for instance during a purchase.

The courts require full and frank disclosure of finances and so attempting to hide Bitcoin will result in the party being in contempt of court and every effort will be made to ensure that the parties are being truthful about their assets.  For many amicable divorces and those where disclosure is not an issue, Bitcoin will merely be another asset to be distributed between the parties.

Please contact Kathryn Ainsworth or Simran Lalli if you would like more information about the issues raised in this article, or any aspect of family law.