Dividing digital assets

Cryptocurrency is changing the face of divorce finances, says Robert Webster

For decades, family lawyers have dealt with a vast range of assets, from property and pensions to jewellery and pets, but now there’s something new to consider—cryptocurrency. Once a rare occurrence, digital assets are becoming increasingly prevalent in high-net-worth financial remedy cases, raising the question of whether practitioners and the law are prepared for disputes surrounding digital wealth.

Concealed wealth in cryptocurrency

Digital assets, which exist only on blockchain technology, are inherently difficult to trace, identify and value, adding an additional layer of complexity for family lawyers dealing with them in financial remedy proceedings. For some, decentralised currency has become a convenient means of concealing wealth, rousing suspicions among an increasing number of clients that their former spouse could be moving funds into cryptocurrency or digital tokens without traceability.

Indeed, Form E (financial statement for a financial order) currently has no dedicated section for digital assets, opening a door for people to deliberately omit any mention of their existence under the pretext of it being ‘accidental’. At present, practitioners should, of course, be advising clients to disclose any digital wealth under ‘investments’ or ‘other assets’ within Form E.

Non-disclosure of such assets may amount to material non-disclosure, as seen in Sharland v Sharland [2015] UKSC 60, [2016] 1 All ER 671 and Gohil v Gohil [2015] UKSC 61, [2016] 1 All ER 685.

Unlike a traditional bank statement or share certificate, which can easily be evidenced and stored for safekeeping, digital assets can be held in digital wallets and accessed via keys and passwords. These can be stored in cold wallets, which are offline storage devices, or hot wallets, which are online via exchanges. If stored offline, proving the existence of and valuing digital currency can even be harder.

Tracing & valuing digital wealth

As family lawyers are not experts in digital assets, practitioners should recognise when specialist input is essential to assist with identifying and tracing when concealment is suspected. Forensic investigators and specialists in this area are increasingly being called upon to identify hidden assets, examining devices, scouring bank statements, tracing wallet addresses, and providing evidence in court, but even their expertise can fall short if digital wealth has been sophisticatedly stored to inhibit access.

“While the law is still catching up, family lawyers can’t be left behind”

If digital assets are disclosed, valuing them also presents a new challenge. For example, the volatile nature of cryptocurrency means that its value can fluctuate significantly between the time of preparing a schedule of assets to the day of the hearing itself. In some cases, we’ve seen it change by as much as 30%. This can have a significant impact on financial settlement offers and can make it difficult to propose a stable asset division. It can also provide an opportunity for parties to delay proceedings in an attempt to time the market for a valuation in their favour. Courts are increasingly alive to this complexity, sometimes implementing measures such as fixing a valuation date to help mitigate such problems.

A legal blind spot

Even if digital assets are identified, traced, valued, and ordered to be transferred by the court, the recipient party may still not receive their share as they are unlikely to have access to the digital wallet or passkeys. If digital assets are held overseas, other jurisdictions may also choose not to co-operate with the court of England and Wales, making it extremely difficult to obtain records and enforce a freezing order or a financial order. As cross-border enforcement is governed by reciprocal enforcement regimes or local co-operation, cryptocurrency’s decentralised nature circumvents these, leaving limited recourse in many cases. As such, it’s important to set expectations with clients, ensuring they are aware of the limitations that may impact access to digital assets.

Looking ahead to legal reform

Digital assets are currently classed as property under English law. However, the Law Commission’s 2023 report, ‘Digital Assets: Final Report’ (Law Com No 256, 2023), recommended the introduction of a third category of personal property to capture digital assets which do not fit into the existing categorisations.

The new category aims to evolve as new forms of digital assets continue to emerge, and a proposed Property (Digital Assets etc) Bill will recognise them as a distinct form of property, providing greater clarity on how these assets should be dealt with in financial remedy proceedings. The Bill, announced in the 2024 King’s Speech, aims to implement many of the Law Commission’s recommendations. The hope is that this will also lead to much-needed updates to disclosure documents to ensure they specifically reference digital assets and avoid any ‘accidental’ omissions of this form of wealth.

While the law is still catching up, family lawyers can’t be left behind. We must navigate this legal grey area by partaking in training on dealing with digital assets, ensuring we’re aware of the right questions to ask and being alert to the signs of concealed wealth.

As younger generations grow older, digital assets will become ever more commonplace in financial remedy cases. As family lawyers, we must take the time to understand digital assets, positioning ourselves to best support clients in securing their fair financial settlement. Those who invest time in understanding blockchain’s mechanics will be better equipped to navigate its growing influence on family wealth.