Cryptocurrencies in financial proceedings
29 June 2020
Whilst cryptocurrencies have been in existence for over 10 years, beginning with the launch of Bitcoin, these are fast becoming a more common investment and potentially an asset that may be more widely featured when dividing the assets on divorce.
Cryptocurrencies exist only in digital form stored in a blockchain, within virtual 'wallets' and are therefore largely anonymous. In financial proceedings following divorce, parties have an ongoing duty to provide full and frank disclosure of their assets. However, by their very nature, it can be very difficult to trace the identity and establish the existence of cryptocurrencies, if these have not been fully disclosed.
Whilst tracing the initial investment can be evidenced easily if made through a conventional bank account, tracking the trail of the investment thereafter, may prove more challenging. In the circumstances, there may often be a need for swift action to prevent cyber assets being disposed of and to flag up any potential issues. It may therefore be necessary to instruct an expert, such as a forensic accountant or investigator, to search and highlight potential transactions.
A further problem arises when valuing cryptocurrencies. As cryptocurrencies are decentralised, this means that they are not controlled by banks or by any entity. Consequently, cryptocurrencies are volatile and the value can fluctuate drastically. Expert valuations should be obtained to establish their current value. This will also need to be kept under review throughout the duration of proceedings.
If a party fails to provide full disclosure during financial proceedings, the Court has discretion to penalise the individual, including the ability to hold them in contempt of court, impose fines and penalties.
If you have any queries in relation to any aspect of divorce and financial proceedings, please contact our specialist team of family solicitors who will be on hand to guide you through the process.