More divorces involve cryptocurrency.

Most crypto investors don’t usually consider divorce or what will happen to their digital assets if they separate, but lawyers say it’s becoming a more common scenario as more people hold crypto assets. A market research firm suggested that as much as 10.2% of global internet users aged 16 to 64 own crypto, with most ownership skewed toward nations experiencing high inflation or fluctuation in the value of their national currency. The divorce rate worldwide varies between lows of 0.15 divorces per 1,000 residents in Sri Lanka to highs of 5.52 per 1,000 people in the Maldives. Family lawyers are seeing an increasing number of divorce settlements featuring digital assets. Once divorce proceedings start, the court follows a process to determine how property and financial matters will be settled. This can include determining what assets are available for division, assessing the parties’ respective contributions, considering whether it is just and equitable to make any adjustments, and evaluating each party’s future needs. The same process applies when dealing with digital assets. Both parties in the divorce are obligated to disclose all documents concerning their assets, digital or otherwise. If both parties seek to retain the crypto and fail to reach an agreement, courts may consider factors such as who paid for the crypto and who owns the wallet when deciding who retains the asset. The volatile and rapid fluctuations in crypto value can be a factor when splitting assets during divorce proceedings. Lawyers must consider that people who have acquired crypto as an investment asset must pay capital gains tax on any disposal, exchange, or swap. The case law on issues relating to cryptocurrency and its value is limited, but there have been several high-profile cases in recent years where the value of crypto assets has taken center stage.The article discusses the impact of cryptocurrency on divorce settlements. It cites the 2020 Australian case of Powell vs. Christensen, where one party in divorce proceedings had purchased crypto and the other sought the digital asset to be valued at its original purchase value rather than the market price. The court ultimately determined that the purchase value should be used for the divorce settlement rather than the reduced market value.

The article also discusses how crypto staking rewards can form part of either spouse’s income and may impact their final property settlement entitlements. The article notes that if a spouse elects to retain the “crypto staking rewards,” they will be retaining a potential income-generating asset, which may impact their property settlement entitlements.

The article also mentions a recent case where a forensic accountant helped track down a husband’s stash of BTC, which he was trying to hide from his wife during their divorce proceedings. The article notes that crypto tokens are included in the pool of assets for division in a divorce, and specific laws require each spouse to be truthful about the assets and other forms of property owned.

The article also discusses prenuptial agreements and how crypto can be included in a binding financial agreement. If a binding financial agreement exists, then specific entitlements to specific assets, such as crypto tokens, must be honored according to that agreement. However, if there is no pre-nup, then factors such as the length of the marriage, financial and non-financial contributions throughout the marriage, and whether one party will become the primary or substantial carer of any children are relevant factors in splitting the asset pool.

Ultimately, the article advises honest and open discussions with a partner about finances on a regular basis to avoid any issues down the track.

“It is recommended to have discussions about cryptocurrency and the couple’s financial status at least once a year as part of the annual tax return filing obligations. Additionally, these discussions should be held every three years when the couple considers updating their wills and estate planning documents,” she suggested.