Everything you should know about dividing crypto in a divorce

Everything you should know about dividing crypto in a divorce

Once considered a niche investment, crypto is now a popular digital asset owned by many Australians. A recent report produced by Finder and commissioned by Coinbase found that 27% of our national population – 5.6 million of us – have owned or are interested in owning cryptocurrency.

The Consumer Cryptocurrency Report 2024 revealed that 1.9 million Australians (9% of the population) have traded crypto in the last 12 months. Of those consumers, 56% believe it’s the future of money.

Considering the majority of Aussie crypto holders view it as a way to grow their long-term wealth, it’s unsurprising that crypto is part of many financial portfolios in 2024. This, of course, means it’s also an important part of many couples’ financial settlements during a divorce or separation.

But given the volatile and unregulated nature of crypto, how can it be split fairly? Disclosing and dividing crypto in a divorce or separation is fraught with legal and financial challenges. In this article, our legal team will explain what you need to know to achieve a fair result.

 

 

What is crypto?

Crypto assets are a subset of digital assets that use cryptography to protect the digital data and record transactions. They are not money in the same sense as our dollars. Instead, crypto operates independently of a central bank, and it isn’t widely accepted as a form of payment for everyday transactions in Australia yet. Instead, according to the ATO, crypto assets are a digital representation of value – one that you can transfer, store or trade electronically.

While it’s yet to reach the financial mainstream, crypto is certainly on the rise. Today, there are many different types of cryptocurrency available, e.g. Bitcoin, as well as various cryptocurrency exchanges. The average Australian cryptocurrency portfolio is said to be worth $21,426.

One major concern with crypto is the lack of clear regulation around its use. The Australian government is in the process of passing legislation to better protect consumers, but many grey areas continue to exist.

 

What you need to know about disclosing and dividing crypto in a divorce

Regardless of the specifics surrounding crypto, since it is an asset, if a separating couple owns crypto, it must be disclosed as part of the property settlement. Here’s what you need to know about disclosing and dividing crypto in a divorce.

 

Parties must disclose all cryptocurrency

The courts treat crypto like any other asset. This means there is a legal obligation in a divorce or separation case to make full and frank disclosure of all crypto held. It will then be valued and added to the shared asset pool during the financial settlement.

Unfortunately, due to the digital nature of crypto, there is an increased risk that one party  might be able to hide the asset from the other. The lack of traceability when it comes to crypto means a party could keep a significant chunk of shared assets undetectable during settlement.

If you think your partner might be hiding crypto, you can look for withdrawal or deposit information in your shared bank accounts. You can also search for signs of a crypto wallet. Cryptocurrencies and tokens can be stored in hot wallets or cold wallets. Hot wallets are online, while cold wallets are offline storage devices, e.g. a USB. If you cannot find any evidence, you can engage an expert to try to track down any hidden crypto.

It’s vital to inform your lawyer so a request can be made to your partner ahead of disclosure. If your partner still fails to disclose the crypto, you could try mediation or taking the matter to the courts.

 

 

The penalties for failing to disclose crypto

If a party fails to disclose crypto during the disclosure process, they may suffer penalties. This could include adjustments to the final property settlement in favour of the other party, a costs order where they have to pay the legal costs of the other party or a requirement to pay a fine.

 

Keep passwords and log-in information safe

Crypto typically has a ‘public key’, which operates like a bank account number, and a ‘private key’, which operates like a password. Without the private key, you cannot access the crypto. Therefore, it’s important to keep track of valuable log-in information so you can continue to access and monitor the crypto amount.

Dishonest parties sometimes use the excuse of a ‘lost private key’ as a reason for the crypto amount not to be included in the asset pool. Don’t rely on your ex-partner to keep the private key – you should also be storing log-in information safely yourself.

 

Valuing crypto can be a challenge

While the value of most assets can fluctuate, the value of crypto can vary wildly – even within a single day. This can make it difficult for the courts to determine its real value. And of course, we need to know its value to determine and divide the asset pool.

It’s wise for you to obtain the advice of a crypto expert, who may be able to offer guidance on the normal range for that particular form of crypto. You should also monitor its value in the lead-up to any legal meetings or court dates, so you can ensure the value provided is the latest available.

Of course, a simple way to determine the value of the crypto is to sell it and add the specific amount to the asset pool. But keep in mind that your ex-partner may refuse to sell, considering many crypto owners believe its value will rise in the future. Selling the asset will also have tax implications.

 

 

Consider tax implications

If your crypto asset is an investment, it could be subject to capital gains tax (CGT). Speak to a tax specialist about the potential tax implications whenever you’re considering transferring or selling your crypto.

 

Need help?

If your asset pool includes crypto – whether your ex-partner admits to it or not – you should proceed under the expert guidance of a trusted legal team.

Here at Toomey Family Law, we can help you navigate the complicated processes of dealing with crypto in a divorce to achieve a fair legal outcome. Browse our free resources page or get in touch today. We would love to support you.



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