Cryptocurrency in Property Settlements

When a couple splits up in Australia, the Family Law Act 1975 governs the division of assets, ensuring a fair and equitable split. Cases involving property settlements are heard in the Federal Circuit and Family Court of Australia (FCFCA) or the Family Court of Western Australia. While tangible assets such as the family home, vehicles, and superannuation are commonly accounted for, some assets, particularly digital assets like cryptocurrency, may be overlooked, either unintentionally or deliberately. Cryptocurrency, due to its decentralised and anonymous nature, presents unique challenges in family law property settlements, particularly when one party attempts to conceal assets. This article examines how Australian family law treats cryptocurrency in divorce settlements, including legal obligations, valuation complexities, and strategies for uncovering hidden digital assets.

How is cryptocurrency in property settlements assessed?

The first step in any family law property settlement is to establish the asset pool, which requires both parties to fully and honestly disclose all holdings. Under Australian law, separating spouses are obligated to provide full and frank disclosure of their financial circumstances. However, this duty is not always observed, and cryptocurrency has increasingly become a tool for asset concealment.

Challenges in detecting assets

Unlike traditional bank accounts or real estate, cryptocurrency is difficult to trace if the owner has taken even basic precautions to obscure its existence. While transactions made through a bank account to a cryptocurrency exchange may be traceable, other methods of acquisition (such as purchasing through a third party and peer-to-peer transactions), make detection far more complex. In these cases, it may be necessary to employ forensic accountants and legal experts to trace the financial transactions, which can be both time-consuming and costly.

What is cryptocurrency?

Cryptocurrency is a digital currency secured by cryptography, making it resistant to counterfeiting or government interference. Most cryptocurrencies operate on blockchain technology, a decentralised ledger maintained by a distributed network of computers. While Bitcoin is the most well-known cryptocurrency, other digital assets, such as Ethereum, Litecoin, Ripple, and Zcash, are also common examples of cryptocurrency.

Is it legal currency in Australia?

Despite its frequent association with money laundering, tax evasion, and other financial crimes, the ownership and use ofcryptocurrency itself is not illegal.

In 2017, cryptocurrency was formally recognised as legal in Australia, and the government has since introduced regulations regarding its use. Many Australians now hold cryptocurrency as an investment or use it for transactions, taking advantage of certain rewards and discounts. Under Australian tax law, cryptocurrencies like Bitcoin are classified as property and are subject to Capital Gains Tax (CGT) when sold or exchanged.

Valuing cryptocurrency for a divorce settlement

One of the biggest challenges in dividing cryptocurrency in a divorce is its highly volatile value. Year to year, the value of Bitcoin, as an example, has rapidly altered. In 2016, one Bitcoin was worth $200 AUD, but by 2017, Bitcoin reached a peak value of $19,783 AUD. Since then, its value has experienced major fluctuations, sometimes losing half its value in a matter of months. Yet more challenging, the value of cryptocurrency can fluctuate dramatically in very short periods, sometimes dropping or rising by 20% in a matter of hours.

The courts may consider the volatility of cryptocurrency when determining the value of this asset in a property division. The most straightforward way to reduce the uncertainty created by the changing value of cryptocurrency is to convert this asset into cash before including it in the asset pool and thus establishing a stable valuation. However, this may not always be practical or desirable, particularly if one party is highly committed to retaining the asset in the form of cryptocurrency.

Proving cryptocurrency ownership

If you suspect your spouse owns cryptocurrency, you should gather as much evidence as possible. Even if a couple is happily married, it is wise to be aware of all aspects of the family finances, as this knowledge can be essential in the event of separation (or even in the event that one person dies or becomes incapacitated).

Potential sources of evidence of cryptocurrency

During legal proceedings, a court may order the disclosure of cryptocurrency holdings, and failure to comply can result in legal consequences. However, the first step is to identify that such assets exist and provide as much identifying information as possible.

Bank account and credit card statements may show transactions with cryptocurrency exchanges, but as noted above, this is not always the case. Often a person will know that their spouse has a cryptocurrency wallet (either digital or hardware-based) even if they do not know the password or key. When the name of the exchange or the fact of the existence of a digital wallet is known, this can allow a more specific demand to be made for a current statement of account.

More broadly, evidence of cryptocurrency may be found in confirmation emails, which are particularly useful because they provide date and time stamps.

In some cases, particularly when significant assets may be involved, it may be worth investing into blockchain analysis tools that can trace transactions on public ledgers.

As cryptocurrency ownership becomes more widespread in Australia, family law settlements are likely to become increasingly complex. If you require legal advice regarding cryptocurrency in property settlements, or any other family law matter, call Go To Court Lawyers on 1300 636 846 or send an email to schedule an appointment.