Jessica Rush: Divorce can take months, or even years, and this can be a real problem if the value of cryptocurrency changes drastically.
Jessica Rush is a lawyer at the law firm Howard Kennedy.
Crypto can be a minefield in a divorce, especially now that the value has dropped.
If you or your ex-spouse has crypto, it can be a shock to see how far it has fallen, especially if you did not know about, or accept, that family money was used to buy it in the first place.
There are some crypto issues that have not been tested in the courts yet, but they are still subject to the same principles of divorce law as all other assets, so below we look at some pitfalls.
If your ex bought the crypto, would they suffer losses after recent falls?
Cryptocurrencies are incredibly volatile. Depending on how much was purchased, this may mean that there is less to share in divorce after the last impairment.
You may feel that your ex should bear that loss – but there is a high threshold for “ruthlessness” that must be met for the courts to find that the money “wasted” should be put back in the pot with available assets to be shared.
That said, in the case of crypto, there is no specific court ruling on this yet.
Of course, your ex-spouse may be willing to take their crypto because they think it will do well in the future – which is probably why they bought it in the first place.
In that case, they may have more than 50 percent of the value of the assets on paper because they take a greater risk.
Whether this is a good argument will depend on many factors, such as your needs and the other available assets.
Can you refuse to accept crypto held by your ex in a divorce settlement?
Many settlements are reached outside the court arena, using alternative forms of dispute resolution.
It is up to you whether you want to make cryptocurrency a redline problem (you do not want to take any of it), share the risk (you take half each), or apply for a larger share of other assets as a sweetener to take on the brother part of the risk.
If you are risk-averse, you may want to let your ex-spouse take on the more risky assets and take on safer assets.
If you really can not agree, you have to go all the way to a final hearing where a court will decide for you, but this poses a problem of valuation.
Crypto can be a minefield in a divorce, especially now that the value has dropped
How is crypto valued in a divorce, and at what time is it set?
The value will most likely be set on the date of a final hearing, or if a settlement is reached through negotiations, the date of the last round of update disclosure.
It is our duty to provide ongoing update information throughout the process.
This is because any assets you share are likely to fluctuate in value over time, and during a long divorce there may be several points where the parties reconsider what is available.
Divorces can take months, or even years, and this can be a real problem if the value of cryptocurrency changes drastically.
Imagine you own four bitcoins, and you started the divorce process on December 31, 2021 – then they were worth 139,964 pounds, enough money to buy a property in some parts of the country.
You negotiate and reach an agreement with your ex-spouse on May 4, 2022, and you agree to take the entire cryptocurrency. At the time, four bitcoins were worth £ 125,975.
This agreement will be sent to court and will be a final court ruling on May 13, 2022. Then bitcoins would be worth £ 95,335, only 68 percent of the value when you started the process.
Now the value of that cryptocurrency may go up again, but if you need to pay off your investment to buy a new property after the divorce, you may be stuck.
Here, the fall in value could be the difference between being able to buy a home directly after a divorce and having a need for a mortgage.
When trading, you need to think about the practical implications of the fluctuating value of bitcoins.
What if your cryptocurrency wallet has been frozen, or even lost due to fraud?
Again, the consequences will depend on the facts.
Assets that have been lost and cannot be recovered are not available for sharing in the event of divorce, but may be subject to an additional claim, which means that they are returned to the pot to be shared and go to the person who “lost” them – again, that is a high threshold for this requirement to succeed.
It is very possible that you will have to discount the lost crypto completely.
If a wallet has been frozen but there is still a valuable asset to be recovered, this is still an asset for divorce purposes, but if the recovery of this value is a long-term risk, this is a risk that may need to be considered in the final settlement. .
A more important question may be whether you can verify whether the freezing or fraud has actually taken place.
In a divorce, both parties have a “duty of complete and honest disclosure”, so you can seek proof of this if you are not sure that your ex-spouse is telling the truth.
What if you accepted crypto in the divorce settlement, but now the value has plummeted?
It is possible for a court to set aside a divorce settlement, if new events occur shortly after it was made which invalidates the key preconditions in the order.
There is no set schedule for new events to be taken into account, as everything can be discussed and depends on the circumstances.
Any events must be “unforeseen and unforeseen”. However, it may not be enough to lose a lot of value on your cryptocurrency.
Currencies like bitcoin have experienced large increases in value as well as large falls, so there is a good chance that a court will say that extreme fluctuations were predictable.
This is not to say that there is no chance of setting aside a financial settlement because the crypto market has fallen or even failed completely, but it would be a high bar to clear and very fact-dependent.
Factors such as the proximity to the final settlement, your ability to meet your basic needs as a home after the fall, the other assets available to you, or the quotas already made in the final settlement for the risk of crypto can all play a role.
However, you can vary maintenance for your former partner or children if the change in the cryptocurrency markets has a significant impact on your finances.
What should you do if your divorce involves cryptocurrency?
If you or your ex-spouse have something complex like cryptocurrency to share in your divorce, you should seek the advice of a lawyer with relevant expertise.
If you are unsure, before instructing a lawyer, you can always ask if they have worked with crypto before and how the fall in value will affect their advice.
