Cryptocurrencies – a divorce nightmare?

Cryptocurrencies have seen a vast upsurge in popularity over the past couple of years.

Many have come and gone but the best known core currencies at present are Bitcoin, Ethereum, Zcash, Dash, Ripple and Monero. Offering the opportunity for fast, secure, private, global transactions they have attracted a range of investors, some seeing a long term market in their underlying technology and others hoping to make a quick return. As with all investments there will be winners and losers.

For some investing in cryptocurrency is perceived as the digital equivalent of keeping their money under the mattress – safe and hidden from view. From the divorce lawyer’s viewpoint, this is a potential nightmare.

Tracing the assets

One of the fundamental underlying principles of divorce is the legal requirement for full financial transparency. Given the nature of cryptocurrency, if either husband or wife chooses to withhold information about their investments, will they be traceable? If there is some evidence that there might be digital currency but none is disclosed, this could lead to the need to hire a top notch digital forensic expert to analyse data related to an individual’s financial transactions.

This in turn is likely to be expensive, would almost certainly require the Court’s specific direction, would be time consuming and there is a risk that even with such analysis the true nature and extent of any cryptocurrency investment may not be discernible.

Valuing digital currency

When such assets are identified we have to grapple with what they are actually worth. Cryptocurrency valuations have and no doubt will continue to fluctuate, sometimes wildly, due to a variety of factors beyond the control of the investor. Determining a value for such assets, other than its spot value on a given day, for divorce purposes is likely to be an extremely fraught process. In one recent case for example, an investment of £80,000 in November 2016 increased to a value of £1million in December 2017, but had fallen in value to £600,000 by February 2018.

Lack of guidance

There is little or no specific guidance available to divorce lawyers as to how they should approach the issue of cryptocurrencies. Unless the substantial difficulties that could arise when dealing with such currencies are grasped, and the dynamics of cryptocurrencies is understood by the decision makers, real problems in dealing with cryptocurrencies in divorce will be inevitable.