What is Bitcoin Cryptocurrency and how could it affect my divorce?
The majority of clients come to see us with a relatively good understanding of the financial assets and debts within their marriage or cohabiting relationship, however, some clients feel on the ‘back foot’ financially having not taken an active role in the financial management of the relationship.
We always assure clients that this is absolutely not a problem and that we will assist in gathering together full information about the family finances before negotiating an appropriate settlement. The commonly dealt with assets within a divorce or separation case are properties, savings, shares, income and pensions, however, there are some rarer types of assets which clients often either don’t know exist or don’t understand, one particular type of asset is that of Cryptocurrency.
What is Cryptocurrency?
Cryptocurrency is becoming more common and something which we should all have a basic understanding of.
Bitcoin is a type of cryptocurrency first developed in 2008. The idea behind it was for a decentralised system away from traditional banks and building societies so that your money would be protected in the event of a banking or economic crisis.
Initially Bitcoins could be purchased for approximately £200 each however due to a rise in popularity there was a rush in 2011 and the value increased to around £1,000 per coin.
A second rush took place in 2017 which saw the rise of Bitcoin value to around £20,000 per coin. Currently the coins have a value of around £6,000 - £8,000 each. It is possible to own either entire coins or proportions of coins.
There are 21 million Bitcoin in the world however, at present they are not all in operation. The number of Bitcoin in existence will never increase beyond 21 million. Large companies undertake blockchain mining to release more Bitcoin into circulation and make them available for purchase. Blockchain is the technology behind Bitcoin cryptocurrency however we will not examine this further here.
Currently, there are various types of cryptocurrency such as Bitcoin, Litecoin, Ethereum and Monero to name a few.
What is the relevance of Bitcoin Cryptocurrency to Family Law?
When considering available assets in a separation case, it is important that all assets are disclosed by both parties. As cryptocurrency is not hugely common, this can often go un-detected as lawyers and client’s do not spot the clues within a person’s bank statements that the asset may exist.
Bitcoin and other cryptocurrency is purchased using online trading platforms. In order to purchase cryptocurrency there is a transaction from a person’s bank to a trading site and it is these transactions on their statement which would lead you to question whether they own any cryptocurrency.
If cryptocurrency is suspected, you should ask for disclosure of the holder’s ‘wallet’. This will show what cryptocurrency is held by them at that particular time. However, this can provide mis-leading evidence as it will only show the current balance, if any. If a cryptocurrency has just been transferred out of the online wallet, to another person’s wallet or to make a purchase for example this will give the illusion that there isn’t and / or never was any cryptocurrency.
Therefore, the next step in the disclosure process is to seek evidence as to the historic transactions within the wallet. It is possible to evidence the past 50 transactions showing how currency came into a person’s wallet and the onward 50 transactions showing where coins have been placed after they have been removed from a wallet. This evidence could show that a person is attempting to hide cryptocurrency.
How to disclose your cryptocurrency
If you have cryptocurrency it is important to fully disclose it to your spouse or partner during financial negotiations. You should provide a list of ‘public keys’ which can be likened to a list of bank accounts to show which cryptocurrency you have and also provide a breakdown of your transactions from the trading platform.
How to value cryptocurrency
The most similar common asset to cryptocurrency is shares. Like shares, the value of cryptocurrency fluctuates and the change in value can sometimes be sudden and drastic. Therefore, the value of cryptocurrency should remain under review during negotiations.
Coins can be liquidated (turned into cash) at any time at the holder’s request. The term for liquidating crypto assets is to turn them into ‘FIAT’. If crypto assets exist and are to be liquidated it is important to obtain advice from a financial advisor as to whether there will be any capital gains tax liability.
If you have cryptocurrency or suspect that your ex-partner does, we suggest that you make an appointment to see us for a free no obligation discussion about how to deal with your financial negotiations and protect or access any assets of concern.