To explore some of these issues is Ffion Greenfield, solicitor in the family team at , the law firm. The editors at this news service are happy to share these views and invite responses; they don’t necessarily endorse all views of guest contributors.

Email the editor at tom.burroughes@wealthbriefing.com

In the last six to twelve months crypto-currencies, particularly Bitcoin, have been a mainstream media favourite, snatching splashy headlines on a weekly basis. Whatever your view on this crypto-curiosity, these online currencies is increasingly part of the matrimonial asset make-up. So what happens to crypto-currencies when couples separate?

Crypto-currencies aim to take out the middle-man when it comes to financial transactions. They are unregulated, meaning there is no intervention from the government or banks to determine how/where/when the currency is bought or sold. Crypto-currencies purport to offer far more security, anonymity and control than other types of financial investment. These protective barriers all sound great if you’re sharing in the upside, but how do you break through these barriers when you need to?

The question we as family lawyers are faced with is; whether we are adequately equipped to deal with assets of this fluid, guarded nature with the tools available under the Matrimonial Causes Act 1973 and the Family Procedure Rules 2010.

In examining that question crypto-currencies pose two key considerations upon divorce; the first is one of disclosure and the second is how the family courts can share out such an asset.

Disclosure of assets
When couples are going through a divorce or dissolution both parties are subject to an ongoing duty of full and frank disclosure of their finances. This is to ensure that the marital pot can be fairly divided so as to properly meet the needs of the parties and any children.

Where a crypto-currency is not fully disclosed by one party we need to trace and find the true value of a party’s investment. Looking at Bitcoin which is anonymously traded through an online distributed ledger called a blockchain; if the investor does not disclose their investment in full, the non-investing party may feel stuck in trying to show the investment even exists, let alone its value.

It may be simple enough to trace the initial investment where a transfer was made from the investor’s bank account. In these circumstances parties can easily prove the investment has been made which is a strong starting point. However following the initial investment, the security offered by the blockchain may at first appear impermeable without the investor’s passwords or a regulatory body to appeal to for assistance.

It seems financial remedy proceedings will see an increased reliance upon specialist forensic tracing agents and investigators to combat issues of non-disclosure of crypto-currencies. Such expert advice is possible under the provisions Part 25 of the Family Procedure Rules 2010.

Expert instructions come at an added cost and delay in resolving matters, but it is always better to know that you are getting the right settlement. If the court finds that one party has hidden/attempted to hide assets with the intention of defeating the other party’s financial claims, then freezing orders can be made against the non-disclosing party under Section 37 Matrimonial Causes Act 1973. Hopefully this should act as a suitable deterrent to any such conduct.

The courts have a duty to ensure that fairness has been secured for both parties, and where parties try to cheat the court and their spouses, they come down hard on the party with dishonest intentions. The courts can penalise parties behaving in this way by making costs orders against them.

Concerned, divorcing couples should take reassurance from the fact that the conduct of the parties both during the marriage and in the context of divorce proceedings may be taken into account by the court when determining a financial order under Section 25 Matrimonial Causes Act 1973.

Division of assets
Where the crypto-currency investment is fully disclosed, the court will have to consider how best to share this asset, which is unlike any other covered by the Matrimonial Causes Act 1973. In making that decision, the court takes into account all of the circumstances of the case before them.

One reason Bitcoin attracts such high-level media attention is its novel and volatile nature. The fluctuation in the value of crypto-currencies can be regular and dramatic and is a significant characteristic of this asset-type to be taken into account in any financial remedy order.

This volatility calls for an expert valuation to be undertaken in proceedings. Where proceedings become protracted, updating valuations may be a necessity. Having an accurate and up-to-date investment valuation will assist the court in determining a fair division for the parties. This could be done in one of two ways.

Firstly the court could make an order to offset one party’s share in the crypto-currency against another asset. For example; if one party has a Bitcoin investment valued at £100,000, and the court considers that this should be shared equally between the parties, they can release £50,000 (half the £100,000 investment), from another asset and provide this to the non-holding spouse. This can only work where there are sufficient matrimonial assets to offset the crypto-currency value against.

The court may adopt this methodology if concerned over potential enforcement difficulties, for example if the invested party has shown a reluctance or refusal to engage with proceedings and the court does not believe they will comply with the terms of the order.

Whilst this option limits potential enforcement issues, a risk of inequality exists in determining the amount to be offset at the time of the financial order being made. If the investment soars post-determination of the finances then one party has been left with their lower value, fixed sum or a less lucrative investment, whilst the other has profited on the crypto-currency. Financial remedy Orders are made in full and final settlement of the parties’ claims. The court wants to avoid parties returning for a second bite of the cherry once final orders have been made.

This is where the second option of dividing the investment at source may be preferable. This addresses the erratic nature of crypto-currencies and offers finality to the parties. The court, as well as the parties may be reluctant to leave one party with all of the potential risk or reward of retaining the full investment.
 
As such the court would consider whether to make an order for the invested party to release a proportion of the investment to the other party in the way that the court orders the transfer of shares. Such an order would have to be made on the basis that crypto-currencies constitute ‘property’ under section 24(1) (a) Matrimonial Causes Act 1973. This would leave both parties in an equal position, giving them control over the investment going forward. This does require the courts to determine whether crypto-currencies fall into this bracket of asset-type.

It is a matter of the family courts evolving to prevent being outstripped by technological developments. The important point to note is that the relevant protections are available via the flexibility of the Matrimonial Causes Act 1973 and Family Procedure Rules 2010, which need to be utilised to the full when dealing with the new and creative ways in which people invest and hide their money.

This will be an interesting development in family law and definitely one to watch.