15 June 2022, By Sara Ser of Hartley of Family Law
Digital assets such as cryptocurrencies (think Bitcoin and Ethereum) are not new and by now, most of us know someone or are someone who has dabbled, if not regularly traded, in these assets. More recent forms of digital assets include NFTs and, there will no doubt be more and more new digital assets to keep an eye out for and spend money on as the digital world expands and people continue to seek out decentralised ways of protecting their wealth away from traditional currency.
What does this mean for your family law matter if you do hold digital assets?
Digital assets are treated like any other asset in a family law matter and are included in the property pool for potential division between the parties. However, the volatile nature of these assets does pose unique issues regarding valuations and the timing of those valuations, not shared by more traditional assets such as real property or even a business.
This means that depending on when you bought and sold, your asset may attract more or less CGT and retaining the digital asset may carry significant risk due to its price fluctuations and affect the overall percentage of the property pool that you retain compared to your ex on any given day.
Another issue with cryptocurrencies is that if the owner of a cryptocurrency loses the password (seed phrase) to their private key, then there may be no way of recovering it and therefore no way of realising the asset.
There is no straightforward answer to how to account for these fluctuations and risks and if you do hold any digital assets you must disclose it to the other side and discuss with your solicitor and accountant the ways in which your digital assets’ unique complexities can be treated. There is no one size fits all solution.
Below are some examples of how the Courts have treated digital assets in recent years:
- In Powell & Christensen [2020] FamCA 944 the Husband invested $100,000 in “Bitcoin and like cryptocurrencies” in breach of a Court injunction. Despite requests, the Husband failed to produce the relevant disclosure but asserted that the cryptocurrency was at the time of trial only worth some $47,000. In the absence of disclosure from the Husband the Judge notionally included the cryptocurrency in the balance sheet at its purchase price of $100,000 and not at the lower value asserted by the Husband.
- In Wade & Alawi [2020] FCCA 832 the Husband drew down $274,000 post-separation on a mortgage in his sole name which he was responsible for paying (but to which the Wife had originally contributed $80,000 in 2012) to purchase Bitcoin but without consultation. He did not consult with the Wife about this. However, the Husband’s investment failed such that there was little equity left in home at the time of trial. The Judge in this case accepted that the Husband’s failed investment was not a deliberate waste of funds and was of the view that had the investment returned a substantial profit then the Wife would have sought it be included in the adjustment of the parties’ interests. The Judge therefore considered that the parties should also share in the losses as a result of the failed investment in Bitcoin.
If you need assistance in your property settlement matter, please feel free to contact one Sara Ser, or one of our other experienced family lawyers.
