With the continued rise of cryptocurrency comes legal uncertainty as to where the assets sit in financial disclosure. Jeremy Tier, a Partner in Wansbroughs Family team looks at the basics of cryptocurrency and the need to identify digital assets during divorce.
Cryptocurrency – the basics
‘Cryptocurrency’ is the umbrella term for a form of intangible, digital currency existing solely online. As with a currency in the traditional sense, cryptocurrency can be bought, traded between individuals and used to purchase tangible assets. The movement of cryptocurrency is facilitated by a blockchain, similar to a server, which keeps a record of all transactions across a specific network.
The primary attraction of cryptocurrency is that the blockchain is decentralised – meaning that a third party, i.e. a bank, is not needed to facilitate the movement of cryptocurrency. The transaction simply goes from A to B, therefore increasing the speed and security of the transfer.
How is Cryptocurrency stored?
Any individual who buys cryptocurrency has a ‘wallet’ in which it is stored. This wallet is also digital and requires personalised keys – essentially passwords – to access it. An investor can decide to keep their wallet in an intangible form i.e. digitally, or often investors will transfer it to a hard-drive or USB for safekeeping. Without knowledge of your personal key, an individual is not able to access your wallet and therefore, your cryptocurrency.
How is Cryptocurrency used?
Any transfers or purchases made using cryptocurrency, identify the destination of the transfer using solely your wallet number – an individual ID code. As this is all that is needed to facilitate the transfer, crypto-wallets do not contain personal details such as names, addresses etc., unlike a traditional bank account. Therefore, unless an individual has knowledge of the exact wallet numbers of another individual or organisation using cryptocurrency, the transactions and wallets remain anonymous. The blockchain simply records the cryptocurrency moving from point A to point B.
Do I need to disclose cryptocurrency in my divorce?
Yes – the duty of each party to uphold ‘full & frank disclosure’ encompasses the need to identify any digital assets held by either party, as they can form a relevant part of the matrimonial ‘pot’. As digital assets are still yet to become fully incorporated into everyday life, the Court remains slow to identify specific procedures for their disclosure during financial remedy proceedings so legal professionals must adapt the current rules.
Due to the anonymity afforded to those holding crypto-wallets, the presence of crypto investments can often be difficult for the other party to identify, if it is not explicitly disclosed. Therefore, where there is a belief that one party holds digital assets which have not yet been raised, or where there are generally digital assets in contention, there are a variety of ways in which a Solicitor can assist:
- Performing detailed analysis’ of the financial disclosure to look for indicative transactions relating to the purchase of cryptocurrency or a crypto-wallet;
- Instructing digital-forensics experts;
- Advising on the potential of ‘off-setting’ those assets against others in the matrimonial ‘pot’.
To discuss your divorce and any crypto-assets in financial disclosure in more detail, call the Wansbroughs Family team on 01380 733300 and book your free 30-minute consultation with our specialist team.