The adoption of Bitcoin and other digital assets or cryptocurrency in individuals’ asset portfolios is the new normal in this day and age. However, the legal treatment of digital assets is unclear. This presents many legal challenges in the area of Family Law and questions as to the proper division of digital assets upon divorce.

Furthermore, these speculative assets are incredibly volatile and almost impossible to predict their value. There are many stories going viral, such as one investor in the UK who made an initial investment of £80,000 in 2016 which became a lucrative investment of £1 million in 2017, only to be reduced to £600,000 in 2018.  A recent case in the Family Court of Australia provides some initial insight into how the Australian Courts may determine property settlements involving cryptocurrency.

What is cryptocurrency?

Cryptocurrencies are a form of digital currency with self-contained systems that allow investors to exchange and trade currency without a central bank. Each unit moves within a network, and as such are not subject to any bank fees or charges. However, cryptocurrencies such as Bitcoin are defined as property under Australian law, and as such, any profits upon sale would be subject to Capital Gains Tax.

Some of the more well-known cryptocurrencies are Bitcoin and Ethereum which have seen substantial fluctuation in their value. For example, in 2016 a Bitcoin was worth $200, but by 2017, it was worth nearly 100 times that amount ($19,783).

Since divorce and other family law proceedings can often stretch over many months, the unpredictability of such investments makes accurate disclosure incredibly difficult. Importantly, property settlements following divorce proceedings affect estate planning, and we have discussed the specific impact of these digital currencies in the article here.

The recent case of Powell v Christensen [2020] FamCA 944

In late 2020, the Family Court heard a matter involving the disclosure and valuation of cryptocurrency assets. The Husband in these proceedings had purchased personal and business assets in the form of cryptocurrency during the course of the relationship. In the property settlement proceedings, he failed to provide any substantial documentation to indicate the contemporary value of those assets. He contended that the tracking of value was a ‘non-trivial’ task and that exchanges are unable to provide certified statements. In the absence of any disclosure detailing current values or market patterns the Court determined that the purchase price of the cryptocurrency to be added back to the wife’s asset pool. This decision effectively disregarding any depreciation in the cryptocurrency held by the Husband and placed the onus on him to account for any difference between purchase price and actual value of the assets.

The importance of financial disclosure for divorce

In property settlement proceedings, each party has a duty to provide full and frank disclosure of their assets and liabilities accrued before and during the marriage. Although in Powell v Christensen the Court found that the Husband had wilfully failed to provide disclosure of such assets and their value, the lack of certified or official statements associated with trading cryptocurrency was apparent. As such, parties may need to establish and track a chain of transactions before and during any property settlement proceedings to adequately show their value in the assessment of the asset pool.

Furthermore, cryptocurrency can be hidden more easily than tangible money held in a bank as it does not need to be tied to a particular account or user. Hiding assets by transferring them to cryptocurrency is a significant risk to disclosure obligations between parties. While digital forensics can be hired to determine if assets are being hidden from the other party, this is a time consuming and expensive process which will only lengthen divorce and property settlement proceedings.

As cryptocurrencies are relatively new, persuasive precedent on how the Courts should handle these cases is yet to be set. However, it is anticipated that these new forms of digital currency will continue to pose challenges within the realm of family law.

How Etheringtons Solicitors can help you

Property settlement and family law proceedings are often complex and burden parties emotionally and mentally. If you would like further information regarding property settlements or if you have any general family law enquiries, please do not hesitate to contact one of our experienced solicitors on 9963 9800 for a confidential discussion or via our contact form.