Cryptocurrency in Family Law Property Settlements

When parties separate in Australia, the Family Law Act requires a fair division of joint assets. Often, there is a focus on the more tangible assets such as real estate, motor vehicles and superannuation. However, in more recent times, there has been a shift to people purchasing assets that are less visible, such as cryptocurrency.

Cryptocurrency is a digital asset that enables parties to move currency without a financial institution, such as a bank. Cryptocurrency can be confusing for some, but several unique characteristics differentiate it from “regular” assets, such as:

• Ownership is based on a possession of a private key rather than a person’s registered identity, meaning that ownership of an asset can be anonymised.
• As there is no regulatory financial body, it is difficult to obtain information through usual avenues such as Subpoenas.
• The asset is held in a digital wallet which can usually only be accessed through a unique pin (or sometimes a series of random words).
• Cryptocurrencies use a blockchain and a decentralised ledger, meaning that no one individual or supervisory agency controls the action of the network.

Pursuant to Rule 6.06 of the Family Law Rules 2021, parties are required to make “full and frank” financial disclosure. However, the anonymity of cryptocurrency is a challenge for family lawyers as, unlike bank accounts that are easily linked to the owner, the ownership of cryptocurrency is not so evident.

For example, Bitcoin records cannot be subpoenaed and records are normally stored digitally on a person’s mobile phone, tablet or computer. The statements are not normally sent in the mail or stored in hard copy, readily able to be accessed by the other party. However, a party may be able to trace ownership via existing bank statements and look for transactions related to the acquisition or sale of cryptocurrency.

It is important to remember that cryptocurrency is purchased through the use of traditional currency and can be traced that way unless it has been transferred by way of a gift. Some of the documents that parties can ask for are:

• Screenshot of the other party’s current balance of each cryptocurrency in each digital wallet;
• A ledger of all transactions for each wallet or cryptocurrency account;
• Copies of bank statements that reflect the acquisition or sale of any cryptocurrency;
• List of purchased goods and/or services through the use of cryptocurrency.

Another crucial step for family lawyers is to ascertain the value of cryptocurrencies. Unlike the stock market and currency exchange markets, there are no universally recognised entities that value cryptocurrencies. Further, the very nature of cryptocurrencies also makes them highly volatile and therefore makes them susceptible to an unpredictable market.

This extreme volatility poses problems when approaching a property settlement. What might have a substantial value one day, may plummet the next. This level of uncertainty is contrasted when considering other more ‘stable’ assets such as shares or property. Accordingly, parties need to take great care when deciding on a property settlement, especially where an asset is held in the form of cryptocurrency.

Cryptocurrency can potentially be treated as a notional ‘addback’, where the value of the asset is ‘added back’ into the property pool. The case law surrounding this concept stems from examining the ‘source’ of the funds used for expenditures (or, in this case, cryptocurrency).

If the funds existed at the time of separation, both parties could be seen as having an interest in the way they were applied and they should arguably be ‘added back’ to the pool. However, it is important to note that addbacks are the exception and not the rule, as the expenditure of an asset does not automatically result in an addback.

There are also instances where a Court may add back funds into the pool if it can be established that a party has acted deliberately to reduce the value of the assets in a relationship. Though, again, this argument can be challenging given the volatile nature of the digital market. This argument is highlighted in the case of Powell & Christensen, where the wife asserted that the husband prematurely dissipated matrimonial funds to purchase and invest in cryptocurrency.

If you or someone you know is going through a property settlement and it involves cryptocurrencies or other unique ‘digital assets’, then speak to one of our specialist family lawyers at Antunes Lawyers who will be able to assist you.