Cryptocurrencies, also known as digital or virtual currencies, are a type of digital money. They enable electronic payments and operate similarly to traditional currencies that rely on physical cash. However, unlike conventional money, which can be exchanged using coins and banknotes, cryptocurrencies exist solely in digital form and are transferred electronically through computer code. Some of the most common cryptocurrencies include Bitcoin, Ethereum, Binance Coin and Ripple.
Is Cryptocurrency Considered an Asset in Family Law Property Settlement
Cryptocurrencies are considered an asset for the purposes of property settlement, however, unlike conventional financial assets, cryptocurrency can present unique challenges in family law proceedings.
Identifying Cryptocurrency Ownership in Family Law Cases
Identifying whether a former partner possesses cryptocurrency can be challenging. Under Rule 6.06 of the Federal Circuit and Family Court of Australia (Family Law Rules) 2021, both parties must fully disclose all relevant financial assets, including cryptocurrency. However, due to the decentralised nature of cryptocurrency, if one party chooses not to disclose their holdings, the other may find it difficult to prove its existence. Even if known, it can be difficult to prove that cryptocurrency assets exist if the passwords or keys have been lost or retained by the other party following separation.
What happens if a Party Refuses to Disclosure Cryptocurrency
If it is thought that a party may have cryptocurrency, but it has not been disclosed, there are a few options for tracing and locating this type of asset.
1. Reviewing bank and credit card statements
Cryptocurrency is usually initially acquired with traditional currency, so bank and credit card statements are an important source of information. They can reveal the crucial entry and exit points for common cryptocurrency exchanges such as Binance, Coinbased, Gemini, Bitfinex, Kraken etc.
2. Reviewing tax returns
The disposal of cryptocurrency is a Capital Gains Tax event, therefore reviewing Income Tax Returns and Assessments may reveal evidence of cryptocurrency holdings and trading history.
3. Subpoenas to Businesses Accepting Cryptocurrency Payments
An increasing number of businesses and organisations may accept payment for services with cryptocurrency. Businesses and organisations may be issued with a subpoena, requiring them to provide documents to help track and identify purchases made using cryptocurrency.
4. Analysis of Electronic Devices and Email Accounts
There are forensic experts who can be engaged to investigate and analyse devices and email accounts which may reveal information regarding the ownership and trading of cryptocurrency.
Valuing Cryptocurrency
Cryptocurrency is incredibly volatile and there can be substantial changes in the value in the time between separation and finalising the property division. In addition, if someone has held cryptocurrency for a long time, they could be sitting on unrealized capital gains, which could mean a tax bill upon selling.
If you know the type and amount of cryptocurrency your former partner has, you can determine its value by checking the current market price for the currency, much like you would for other assets.
Case Law Example: Powell & Christensen
With cryptocurrency becoming a more common investment, the Court has now considered the issue of cryptocurrency in the context of family law property settlement. In the case of Powell & Christensen there were issues regarding the disclosure and value of cryptocurrency holdings. The background to the matter included that:
Case Law Example: Powell & Christensen
With cryptocurrency becoming a more common investment, the Court has now considered the issue of cryptocurrency in the context of family law property settlement. In the case of Powell & Christensen there were issues regarding the disclosure and value of cryptocurrency holdings. The background to the matter included that:
- The Husband had purchased cryptocurrency.
- The Wife claimed the Husband had withdrawn funds from the joint account and invested them in cryptocurrency that had lost value
- There was a failure by the Husband to provide documentation by way of disclosure about the current value of the cryptocurrency.
- The Court determined that the purchase value should be adopted for the purpose of settlement and added back to the asset pool.
Need Help with Cryptocurrency in your Family Law Matter
Cryptocurrency can be very challenging in family law cases due to its decentralised nature, difficulty in tracking ownership, and volatility in value. It is therefore wise to obtain expert family law advice if there are cryptocurrency assets involved in your family law property settlement. Contact one of our experienced family lawyers for a free 20-minute phone consultation about your individual situation. Book a free phone consultation now.