On the breakdown of a marriage, where financial arrangements need to be determined, husband and wife have a duty to make full disclosure to each other of any interest they have in assets and liabilities. Most will be fairly obvious – the family home and any other property, bank accounts, pensions and so on. Cryptocurrency is not so common, and we advise caution when dealing with this type of asset in family law proceedings, as it cannot be treated in the same way as most other assets.
Firstly, a cryptocurrency such as Bitcoin may not be easy to discover if its owner wishes to hide it. Given that it is virtual in nature, the person with interest does not have possession of the cryptocurrency, only possession of the private key, or the digital wallet that holds the private key, and that may be held by a third party.
Locating where the private key is stored may be difficult. The person wishing to prove the existence of a cryptocurrency in someone else’s possession may need to put evidence before the court, such as written references to it in text messages, or screen shots from a computer screen, as in the case of Vorotynseva v Money-4 Ltd (trading as Nebeus.Com) and others, and invite a court to draw an inference.
Once it is established where, and how, the cryptocurrency is stored, preservation of the asset should be the next consideration and may need urgent action.
With a bank account, a court can order a freezing injunction or, if there are sufficient assets, off-set one party’s interest in assets that have been dissipated by giving them a greater share in assets that remain.
The courts in England and Wales consider a cryptocurrency to be property, which makes it subject to a proprietary freezing injunction (i.e. where a party is prevented from dealing with a particular asset to stop them from dissipating it and frustrating someone else’s claim to the asset).
So, once the cryptocurrency is traceable, the court may make a proprietary freezing injunction in respect of the digital wallet. This can be extended to include a device on which a crypto wallet is saved. If the cryptocurrency is bought and sold via an online exchange, and therefore controlled by the exchange, a freezing injunction should be extended to include the exchange.
If the digital wallet is not held by an exchange, but is on a device such as a USB stick, it may be necessary to obtain physical possession of the device to prevent the asset from being ‘lost’, and so orders for custody and preservation may also be necessary. These may preserve the asset but also enable them to be analysed by any experts instructed to identify the extent and value of a holding.
If you have a suspicion that your spouse may be hiding, or may seek to dispose of cryptocurrency it is imperative that you take swift action and obtain appropriate orders from the court. For further information on preserving cryptocurrency in divorce, and any other family law queries please contact James Grigg at [email protected] or on 07770 656 762.