How the Rise of Digital Currencies is Complicating Family Law Cases

In recent years, the rise of cryptocurrency has presented unique challenges in family law proceedings, particularly as it relates to the division of family property. Cryptocurrencies like Bitcoin, Ethereum, Ripple and others, have become increasingly popular as alternative investment assets. As more individuals embrace these digital currencies, their presence in family law cases is becoming more common. However, their inherently digital nature can be difficult to track, value, and fairly divide between separating parties. Moreover, due to the fast-evolving nature of the cryptocurrency market, valuations can vary significantly over short periods, adding complexity to the process. While these digital assets are indeed considered family property, their unique characteristics challenge the traditional processes of asset division between separating parties.

How does cryptocurrency get concealed?

In family law proceedings that involve the division of property, full and frank financial disclosure stands as a fundamental principle. Both parties are required to provide complete and accurate information about their assets, liabilities, income, and expenses. Unfortunately, the anonymous and decentralized nature of cryptocurrencies can tempt some separating parties to try to conceal their digital assets.

Concealing cryptocurrency assets during family law proceedings is an alarming trend that has caught the attention of legal professionals and courts alike. There are several ways in which a party may attempt to hide their digital assets:

  1. Unreported accounts – a party might fail to disclose accounts or digital wallets holding significant amounts of cryptocurrency

  2. Concealing cryptocurrency through strategic transfers – a party might temporarily move their cryptocurrency into a friend or family member's digital wallet in an effort to safeguard these assets from division, with the intention of retrieving them once the legal matter concludes

  3. Utilizing offshore accounts and wallets – a party may resort to creating accounts or wallets in jurisdictions with strict privacy laws, which can complicate the discovery process

Lack of disclosure poses serious implications for the family law process. When a party hides cryptocurrency holdings, it not only jeopardizes the integrity of the proceedings but also undermines the ability to achieve a fair and equitable division of assets. Failure to disclose cryptocurrency assets can lead to disputes, delays, increased legal costs, and potential sanctions by the court against the non-disclosing party.

What are the consequences of non-disclosure?

Non-disclosure of cryptocurrency assets during family law proceedings can have serious consequences for the non-disclosing party. Courts may impose various sanctions on the non-disclosing party, including:

Contempt of court - if the court determines that a party deliberately concealed assets, they may be found in contempt, leading to fines or even jail time

Financial penalties - courts may order the non-disclosing party to pay financial penalties because of their failure to provide full disclosure

Unjust distribution of assets - concealing assets can result in an unfair division of family property, as the court may base its decisions on incomplete or misleading information

Loss of credibility - the credibility of the non-disclosing party can be severely damaged in the eyes of the court, potentially affecting other aspects of the settlement, such as parenting or spousal support

In family law matters involving cryptocurrency, addressing the issue of undisclosed assets requires open and candid communication between parties during the financial disclosure stage. Enlisting forensic accountants and legal professionals skilled in cryptocurrency matters can further promote transparency and fairness in the process, even compelling the revelation of concealed assets or accounts.

How are cryptocurrency assets valued?

Valuing cryptocurrency during separation can be a difficult task. Their distinguishing feature – a lack of a centralized regulatory authority – means these digital currencies are uniquely volatile, with prices that fluctuate dramatically. Because of this, the date of valuation is especially important. Unlike traditional assets, the value of any cryptocurrency asset can swing drastically based on the chosen valuation date.

In Alberta, family property is valued at the date of trial, not the date of separation as per the ruling in Hodgson v Hodgson, 2005 ABCA 13. Therefore, there may be asset valuation disputes that arise to account for the passage of time and unrealized gains or losses.

Given these intricacies, those undergoing a separation are strongly advised to consult legal professionals. Additionally, seeking the expertise of forensic accountants or valuation specialists can offer clarity in navigating the unpredictable terrain of cryptocurrency valuation.

Dissipation of digital assets

Cryptocurrency in the context of family property division is still in its beginning stages – the Alberta courts, for instance, have only seen a few such cases and are still determining if cryptocurrency even qualifies as property in the traditional sense. Accordingly, the concept of ‘dissipation’ is particularly complex when cryptocurrency is involved. Traditionally, ‘dissipation’ refers to the intentional waste, depletion, or misuse of family assets by one party to unfairly disadvantage the other, often in an attempt to diminish the overall value of assets up for division. In the realm of cryptocurrency, such dissipation could take various forms, such as:

High-risk trading - deliberately engaging in high-risk cryptocurrency trades, potentially incurring significant losses thus reducing the total value of family property

Post-separation spending - using cryptocurrency assets, considered to be family property, for personal spending after separation can also be considered dissipation

Secret transfers –attempting to dissipate family assets by secretly transferring cryptocurrencies to offshore or private accounts, effectively hiding them from both the other party and the court

Given the emerging challenges of cryptocurrency division in family law cases, it is important to recognize the gravity of dissipating these assets and the intricacies surrounding their legal treatment. Alberta's Family Property Act, for example, allows courts to factor in dissipation when deciding on asset division. As a result, the aggrieved party might be awarded a larger share of the remaining assets as compensation. However, due to the novelty of such cases and the evolving nature of the legal framework, seeking legal advice is highly recommended.

Tips for protecting your rights in a separation involving cryptocurrency

As cryptocurrency becomes an increasingly prevalent asset in family law matters, protecting one’s rights and interests can be a challenging endeavour. Navigating the intricacies of cryptocurrency holdings requires a clear understanding of their unique nature, and knowing how to safeguard your assets during a separation is essential. Here are some key tips to consider when confronting the complexities of a cryptocurrency related separation:

  1. Preserve digital evidence and documentation – keep copies of all relevant records, including transaction histories, wallet addresses, exchange statements, and any communication related to the acquisition and management of the cryptocurrency assets. This documentation will serve as valuable evidence during the family law proceedings to support your claims about the existence and value of your digital assets.

  2. Consider taking screenshots or saving relevant files periodically – cryptocurrency markets are highly volatile, and preserving evidence from various dates can aid in establishing accurate valuations and identifying patterns of asset movement. If possible, capture the state of your digital assets at different points in time and keep copies.

  3. Seek court intervention to preserve digital assets – one way that you can ask for the courts assistance in preserving your digital assets after separation is by obtaining a Mareva injunction, also known as a freezing order. This type of order can be used to prevent a party from disposing of or dissipating assets during litigation. Mareva injunctions are commonly sought in cases where there is a risk that a party may attempt to transfer or hide assets. Since cryptocurrencies can be easily moved and hidden without a centralized authority, preserving digital assets requires careful consideration and swift action. This can include securing wallet access to prevent transfers or further access, or freezing of the party’s cryptocurrency exchange accounts to block them from trading or withdrawing funds from the account until the family law proceedings are resolved.

Professional legal advice is essential throughout the disclosure, valuation, and division processes, to ensure that the divorcing parties understand their rights and obligations concerning cryptocurrency and other digital assets. By working with knowledgeable family lawyers experienced in handling digital assets, couples can address any legal complexities that may arise and make informed decisions about the division of their cryptocurrency holdings. The family lawyers at Crossroads Law are ready to help you with your case today. Book your free 20-minute consultation online or by phone. 

The information contained in this blog is not legal advice and should not be construed as legal advice on any subject. The information provided in this blog is for informational purposes only.