Separations are generally complex, not to mention messy, but the emergence of cryptocurrencies has thrown a new spanner into the works, according to Parke Lawyers.

Virtual currencies such as Bitcoin and Ethereum, not to mention the entire phenomenon of blockchain technology, are difficult for many to understand. As they become popular, the need for lawyers to fully understand how they work is rapidly increasing.

This is particularly the case in separation and divorce as couples divide their assets.

Parke Lawyers Managing Director Jim Parke said the increasing popularity of cryptocurrencies meant that more separations involved Bitcoin and other derivations.

“Due to the virtual nature of these transactions, most of which are pseudonymous, they are hard to trace and difficult to value.

“The absence of physical currency and the use of online trading methods may make cryptocurrencies a tempting safe-haven for an unscrupulous spouse wishing to hide assets from their partner. Holding cryptocurrencies in a digital ‘wallet’ identified by a pseudonymised private address makes them difficult to trace. That said, the volatile and unregulated value assigned to cryptocurrencies may make this a high risk and potentially wasteful strategy.”

Cryptocurrencies are relatively new, with Bitcoin created in 2009, and lawyers are now beginning to see the first instances of separations involving virtual currency.

Mr Parke said the splitting of assets during divorce proceedings was much more complex when cryptocurrencies were involved.

“If one partner decides not to disclose their cryptocurrency holdings, the divorce process can be much more time-consuming and expensive.

“Virtual currencies traded using an online exchange or acquired with funds from a bank account can be traced and valued but the absence of an identifiable paper trail in some transactions can lead to much more anxiety for the other party.

“This may necessitate bringing in a digital forensics expert to search electronic records but this takes a lot of time and can cost thousands with no guarantee of any return on investment.”

Mr Parke said the volatile prices of virtual currencies also made it difficult to determine settlement amounts, and the value may fluctuate considerably during the relationship and post-separation.

In December Bitcoin reached a record high of almost US$20,000 but less than two months later it was approximately US$6,000.

With valuation difficult, whether it will be more prudent to divide the number of the virtual currency held rather than the putative value, he said, will depend upon the circumstances at the time the property division is being determined.

Mr Parke said these complexities made it vital for lawyers to have a thorough understanding ofcryptocurrencies. It would also be necessary for the courts to gain knowledge of the technology. Fundamental questions, such as whether cryptocurrency holdings are property and whether courts have jurisdiction under family law legislation to make orders in respect of them have yet to be answered.

“There is little existing case law on these novel forms of ‘property’ to guide procedure, which means new ways of handling these matters will be devised as time passes and more hearings take place.”

Anyone seeking more information about this subject can contact an expert lawyer at Parke Lawyers.