Q: My wife got interested in bitcoin while we were together. Over the last couple of years, she invested a lot of money into it. As far as I could tell, it was pretty successful. Now we have separated, I am not sure what happens next. I know we have to divide our property. Do I have to take half of the bitcoin? I am clueless about how bitcoin works so I do not know if that is what I want.
Divorce is not new, but there are always new problems that arise as society changes. Cryptocurrency is a new issue that is becoming more common for separating couples.
Bitcoin is the most well-known form of cryptocurrency. It can be difficult for many people to understand exactly what it is as its value is not tied to a company creating value, as stocks are. However, it is still a property interest and therefore, it can make up part of the relationship property pool to be divided at the end of a relationship.
There is a presumption that all property acquired during the relationship will be divided 50/50 at the end of a marriage. Unless you qualify under one of the very narrow exceptions, the bitcoin your wife purchased while you were together will be considered relationship property. This means that you are entitled to a 50 per cent share in its value.
When relationship property is divided, parties generally have two options:
• One party keeps the property interest and compensates the other, either through cash or by allowing them to keep something else; or
• The property is sold and the proceeds of the sale are split evenly between the parties.
The unique problems with bitcoin
Difficult to pinpoint the value
The value of cryptocurrency can be tough to calculate as the markets fluctuate significantly in a very short space of time. When parties are trying to determine the value of the family home, a market valuation is usually valid for approximately six months (depending on the state of the market). However, the value of bitcoin can change weekly.
If the investment is significant, the date on which you value the bitcoin could greatly impact your share of the relationship property pool. One approach that has been used overseas is to take multiple valuations across the separation process and use a calculated average.
If you are do not have experience trading in bitcoin, you may not be interested in your wife transferring a share to you. Couples often have different tolerances to risk. You may not feel comfortable having your assets in a high-risk investment. However, this option is available if you would prefer the bitcoin to cash or another asset.
It would be a good idea to seek financial advice to determine whether bitcoin is the right investment for you. If you agree to a transfer of the bitcoin, you will need to consider whether there are any fees or tax implications. You should take advice regarding the realisation of value from your half share of the bitcoin investment assets.
How do you decide when to value or sell?
If you are settling your relationship property by agreement, you and your wife can choose how and when you will value the investment. Usually, valuations are carried out as close as possible to the date the agreement is signed. If you are struggling to agree, you may need to attend mediation. A mediator can help you reach an agreement on a range of issues, including a valuation date or method.
If you cannot reach a property agreement yourselves, you can apply to the Family Court to decide. The Court will value the assets as at the date of the hearing. It often takes a long time to go to hearing, as long as 12-18 months. Valuations can often fluctuate a lot in this time. For an investment as volatile as bitcoin this could work in your favour or not.
The Court process is often stressful for the parties involved. It is best to work out an agreement between yourselves as early after separation as possible. This provides you with certainty over your division of assets and the value of those assets.
Cryptocurrency is still a novel issue in many relationship property disputes. Determining a value will be difficult. It is likely that you will need expert advice in making your decision as to whether to keep the bitcoin or be compensated by taking more of the remaining relationship property. This depends greatly on your appetite for risk.
- Jeremy Sutton is a senior family lawyer, specialising in divorce cases where there are significant assets, including family trusts and complex business structures.