Cryptocurrency in Property Settlements

When a couple divorces in Australia, the law requires a fair division of the marital assets between the parties. This area of law is governed by the Family Law Act 1975 and cases concerning marital assets are heard in Division 2 of the Federal Circuit and Family Court of Australia (FCFCA). It is generally understood that assets such as the family home and cars, and investments such as superannuation, will be divided between separating spouses. However, there are classes of assets that are less visible, that may be overlooked – either accidentally or intentionally – during a separation. If, for instance, an individual holds significant assets in cryptocurrencies, and does not disclose them to their spouse, it is difficult to prove the existence of the asset.  This article examines Australian family law, including common law precedent, in relation to cryptocurrency in property settlements.

Cryptocurrency in Divorce Settlements

In a family law property settlement the first step is to ascertain the asset pool. This process relies on each party disclosing their assets and liabilities to the other party. The spouses have an obligation to make full and frank disclosure of their financial circumstances. Human nature being what it is, this obligation is not always observed. Solicitors will often represent a spouse who has a suspicion, but no concrete proof, that their spouse is concealing assets. Increasingly the method of choice for hiding assets has moved from off-shore accounts to cryptocurrency.

There is currently no efficient way to establish whether a cryptocurrency asset exists if the owner has taken even rudimentary measures to cover their tracks. It is possible to uncover the purchase of crypto-assets from an exchange if a bank account was used, but if the currency was bought through a third party or deep net account and stored in a hard wallet, then uncovering possession of this currency is much harder. In such cases, it is necessary to forensically trace the funds that were used to purchase the currency, which will take a lot longer and cost a great deal more in legal and accounting costs.

What is a Cryptocurrency?

Cryptocurrency is a virtual or digital currency that is protected by cryptography, ensuring that it is less vulnerable to counterfeiting. Most cryptocurrencies are decentralised networks based upon blockchain technology, enforced by a widespread computer network. One of the defining characteristics of cryptocurrency is that it is a non-government issued currency, effectively immune to government manipulation or interference. The most popular form of cryptocurrency is Bitcoin, but there are other cryptocurrencies, including Litecoin, Ripple, Ethereum and Zcash.

Is Cryptocurrency legal?

There is an undeniable link between cryptocurrencies and criminal activity. Authorities have found connections between the currency and money laundering, tax evasion and ponzi schemes. However, ownership of cryptocurrency is not itself illegal. Many people have purchased the currency for investment purposes or to capitalise on rewards and discounts offered for the use of the currency. Cryptocurrency was declared legal in Australia in 2017 and the country has been surprisingly progressive in embracing cryptocurrency and implementing regulations on the currency. The Australian government has established that cryptocurrencies such as Bitcoin are property under the law and subject to Capital Gains Tax.

Valuing Cryptocurrency for a Divorce Settlement

Cryptocurrency has an exchange rate and can be converted into dollars. The value of cryptocurrency has fluctuated wildly over the last few years, dropping as much as 20% in a few hours. In 2016, one Bitcoin could be purchased for $200 Australian dollars, but by 2017, one Bitcoin was worth $19,783. This is one factor that makes valuing cryptocurrency so difficult for a divorce settlement. In order to provide a greater degree of certainty, it may be preferable for crypto assets to be converted into cash and contributed to the asset pool in a more stable form, but this will not always be appropriate or desirable. As such, the volatility of the asset value may need to be incorporated into a consideration of the asset division.

Gathering Evidence for a Divorce Settlement

If someone has reason to believe that their spouse owns cryptocurrency, they should gather all the available evidence. We would recommend this even for happy couples with no expectation of separation and divorce: it just makes good sense to understand a partner’s assets and liabilities, in case something happens to one spouse and the other needs to locate information quickly.

Bank account and credit card statements that show deposits or withdrawals for the purpose of purchasing cryptocurrency can be submitted to the court as evidence. If the cryptocurrency owner has a wallet (either online or in a physical device), it will have identification and a password that can be requested during a court case, during the discovery phase. In addition, most cryptocurrency transactions are confirmed via email, and will leave a time and date stamped trail of the amount and conversion rate.

It is likely that family law property settlements will become more complicated as cryptocurrency ownership becomes more widespread in Australia. The question is whether forensic experts will be able to keep up with this new technology in order to ensure a fair and equitable division of assets in divorce settlements. If you need more information about cryptocurrency in property settlements or any other matters relating to your divorce, please call Armstrong Legal on 1300 038 223 or send an email to make an appointment.