What are cryptocurrencies?
Cryptocurrencies are a digital asset. They are a form of digital currency that allows individuals to make payments to each other online. Cryptocurrencies are popular as they are not regulated by a bank or regulatory body, and as such, often avoid charges and fees that are often associated with transferring traditional forms of currency.
As set out by Rule 13.04 of the Family Law Rules 2004, Family Law proceedings require parties to provide full and frank disclosure of matters that are relevant within their proceedings. Cryptocurrency certainly falls within this category of relevant disclosure and as such, must be disclosed.
Why do Cryptocurrency complicate Family Law matters?
Although cryptocurrencies offer exciting investment opportunities, they have the potential to wreak havoc in Family Law proceedings.
Hidden in plain sight
The primary reason why Cryptocurrencies can complicate a property settlement is that it is not always obvious as to when someone has a cryptocurrency portfolio. Ownership of a cryptocurrency is determined by the possession of a private key, only possessed by the individual who has the digital asset. As such, the owner of the cryptocurrency in particular will not have a registered identity. How individuals view and access their cryptocurrency is via an electronic “wallet”. This wallet displays the amount and value of each cryptocurrency that an individual owns and can only be accessed by a password, or a PIN contained within a USB – memory stick.
Because there is very little trace or evidence of ownership, often parties are often unaware that their ex-partner even possesses any cryptocurrency.
Valuation fluctuations
Another reason why cryptocurrencies can complicate a Family Law proceeding is because the value of cryptocurrencies can change both rapidly and dramatically. For example, from 2009 to 2010, Bitcoin (a popular cryptocurrency) increased in value by a whopping 30,203%. Whilst fluctuations of this magnitude are less common, it speaks to the unpredictable nature of cryptocurrencies.
In family law proceedings, property division between parties is usually determined by the court on a percentage basis. I.e., 55% of the property pool goes to party A and 45% goes to Party B. Because the value of cryptocurrencies can change dramatically, its inclusion in a property pool makes ascertaining an accurate value of a property pool and thus, accurate percentage splits, very challenging.
What do I do if my partner is hiding their cryptocurrency?
If you believe your partner is hiding cryptocurrency, discuss it with your lawyer. They can prepare correspondence reminding your ex-partner of their obligation to full and frank disclosure. In ordinary circumstances, if a party believes the other party in a family law matter is not being entirely truthful regarding their finances, they can file and serve a subpoena on the relevant third party, e.g., your ex-partner’s bank, to disclose the relevant information. However, this avenue is made much more difficult with cryptocurrencies as cryptocurrencies, unlike other forms of capital or investment, are not managed by a centralized third party or regulatory body, and are often overseas. Deciding which entity to subpoena is a lengthy and time-consuming process.
An alternative route may be to ask the Court to order what is known as an Anton Pillar Order, whereby your ex-partner’s electronic devices would be seized.
How does the Court determine the value of cryptocurrency?
In Family Law it is important that parties provide accurate valuations of their assets so that a just and equitable division of assets can be properly achieved. However, as discussed above, it is often difficult to provide an accurate value of a crypto currency portfolio due to the volatile nature of cryptocurrency trading.
When assessing the value of cryptocurrencies, the Court will look at the market value of each particular cryptocurrency to assign a parties’ cryptocurrency portfolio a value. However, given the unique nature of cryptocurrencies there is value in providing regular updates as to any fluctuation in the market.
Can cryptocurrencies be “added back” to the property pool?
In short, yes, cryptocurrencies have the potential to be added back notionally to the property pool. An addback is where a party to a relationship causes a loss to the value of an asset, and the value lost, is notionally added back to property pool, and is treated as funds already received by the party that caused the loss.
It is important to note however, that addbacks are the exception rather than a rule. Simply because a party’s actions have reduced the value of a marital asset does not automatically mean that the court will allow for an addback.
Where a party has recklessly or negligently invested in cryptocurrencies, there may be an argument to be made for treating the loss as a notional addback.
This is what occurred in the case of Powell & Christensen [2020] FamCA 944, where the husband invested $100,000 in cryptocurrencies, which was a breach of existing Court orders. Despite requests, the Husband failed to produce the relevant disclosure but asserted that the cryptocurrency was at the time of trial only worth some $47,000. In the absence of disclosure from the Husband the Judge notionally included the cryptocurrency in the balance sheet at its purchase price of $100,000 and not at the lower value asserted by the Husband.
You should always get advice from the best family lawyers. Barker Evans provides expert family law advice, and we are located in the heart of Sydney CBD.
We have considerable experience guiding our clients through complex property matters involving cryptocurrencies. If you want advice from an expert family lawyer, please do not hesitate to contact us on (02) 8379 1892 or info@barkerevans.com.au.
