Understanding Cryptocurrency in Family Law

Understanding Cryptocurrency in Family Law

The Family Law Act 1975 (Cth) mandates an equitable distribution of marital wealth following the termination of a marriage in Australia. This distribution typically encompasses tangible possessions such as family residences and automobiles, as well as investment assets like superannuation. Nevertheless, the dynamic landscape of the digital world has given rise to a new breed of assets, often neglected during the division process. Cryptocurrency, an asset held by a spouse that could be of considerable value, yet undisclosed, serves as a prime illustration of these emerging assets, resulting in a convoluted process for verification.

cryptocurrency in family law

Cryptocurrency & Property Settlements: Unmasking the Intricacy

The task of identifying the asset pool forms a vital initial phase in family law property settlements. It is anticipated that both parties fully and honestly reveal their assets and liabilities. However, due to the inherent propensity of human nature, this obligation is not consistently upheld. Family law practitioners often encounter clients who suspect their spouses of hiding assets, yet they are devoid of tangible evidence. Recently, the favoured mechanism for asset concealment has shifted from offshore accounts to the realms of cryptocurrencies.

Presently, if the holder of a cryptocurrency asset takes even rudimentary steps to mask their actions, no reliable method for tracking the asset is available. It is plausible to uncover crypto-asset purchases from an exchange if a bank account was involved, but if the acquisition was effected via a third-party or deep net account and housed in a hard wallet, detection becomes significantly more difficult. Situations like these call for an intricate forensic tracing of the funds employed for the currency acquisition, an undertaking that is not only lengthy but also accrues considerable legal and accounting expenses.

Grasping the Concept of Cryptocurrency

Cryptocurrency, in essence, is a virtual or digital currency secured by cryptography, consequently mitigating its susceptibility to forgery. Cryptocurrencies typically function on decentralised networks based on blockchain technology, a system sustained by a distributed network of computers. A distinguishing feature of cryptocurrencies is their issuance by non-governmental entities, making them immune to governmental influence. Bitcoin remains the most widely recognised cryptocurrency, with others such as Litecoin, Ripple, and Ethereum gaining momentum. In 2017, cryptocurrency was sanctioned legally in Australia, with the Australian government classifying cryptocurrencies like Bitcoin as property under the law, thereby making them subject to Capital Gains Tax.

Valuation of Cryptocurrency for Property Settlements

Cryptocurrencies are exchangeable for standard currencies at an exchange rate. Yet, cryptocurrency values have experienced drastic fluctuations over time, with drops as high as 20% within mere hours. For instance, in 2016, one Bitcoin was purchasable for 200 Australian dollars, but by 2017, the value of one Bitcoin surged to 19,783 Australian dollars. This volatility adds complexity to the valuation of cryptocurrency for property settlements. Occasionally, converting cryptocurrency assets to cash for a contribution to the asset pool in a more stable form could provide added certainty. However, this strategy may not always be optimal or desired. Thus, the fluctuating nature of the asset might need to be taken into account during asset division considerations.

Related: Learn how assets are valued during separation

Key Takeaways

In cases where a spouse’s ownership of cryptocurrency is suspected, all accessible evidence should be diligently collected. This methodology is also recommended for couples who are happily married with no foreseen plans for separation. Comprehending a partner’s financial assets and liabilities is advantageous in the face of unforeseen circumstances.

Evidence, including bank account and credit card statements showing deposits or withdrawals for cryptocurrency purchases, can be used as evidence in court. Cryptocurrency wallets, be it digital or physical, come with identification markers and passwords that can be requisitioned during the court’s discovery phase. Furthermore, most cryptocurrency transactions are confirmed via email, leaving behind a documented trail detailing the transaction amount and conversion rate, timestamped for future reference.

Get Help From Our Experienced Property Settlement Lawyers

If you require legal advice for asset division or representation in any legal matter, let our property settlement lawyers assist you. Please contact our office at 1300 111 835 or by email at The Family Lawyer


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Christian Bolog

Director | Head of Commercial Law

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