Mid Mountains Legal Blog

Family Law Property Settlements and Cryptocurrency

Anthony Steel

When a couple separates in Australia, assets such as the family home, cars, shares, investment properties, and superannuation are divided between separating partners. However, less visible classes of assets may (either accidentally or intentionally) be overlooked. If, for example, one partner holds but does not disclose significant assets in cryptocurrencies, it is difficult to prove the existence of the asset.

Cryptocurrency In family law property settlements

In a family law property settlement the first step is to ascertain the asset pool. This relies on parties disclosing their assets and liabilities to each other. 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. A spouse may have a suspicion, but no concrete proof, that their spouse is concealing assets. Increasingly, the method of choice for hiding assets has shifted from off-shore accounts to cryptocurrency.

There is currently no efficient way to establish the existence of a cryptocurrency asset 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 deep net account or a third party and stored in a hard wallet, uncovering possession of this currency is much harder. The funds that were used to purchase the currency must be forensically traced. This process takes a lot longer with high accounting and legal costs.

What is cryptocurrency?

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

Is cryptocurrency legal?

Authorities have found connections between the cryptocurrency and money laundering, ponzi schemes, and tax evasion. However, ownership of cryptocurrency is not itself illegal. Many people have purchased the currency to capitalise on rewards and discounts offered for the use of the currency or for investment purposes.

Cryptocurrency was declared legal in Australia in 2017. It has been rapidly embraced and the Australian government has established that cryptocurrencies are property under the law and subject to Capital Gains Tax.

Valuing cryptocurrency for a family law property 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. This makes valuing cryptocurrency difficult for a divorce settlement. 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 desirable or appropriate. The volatility of the asset value may need to be taken into account in considering the asset division.

Gathering evidence for a divorce settlement

If a party has reason to believe that their spouse owns cryptocurrency, they should gather all the available evidence. Even happy couples with no expectation of separation should understand their partner’s assets and liabilities, in case something happens to one spouse and the other needs to locate information quickly.

Credit card and bank account statements showing deposits or withdrawals to purchase cryptocurrency can be submitted to the family courts as evidence. If the cryptocurrency owner has a wallet (either in a physical device or online), it will have identification and a password that can be requested during the discovery phase of court proceedings. Additionally, most cryptocurrency transactions are confirmed via email, which will leave a time and date stamped trail of the amount and conversion rate.

Family law property settlements are likely to 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 family law property settlements.

What now?

Contact us if you or someone you know needs advice or assistance with a Family Law property settlement.

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