When a couple separates in Australia, each spouse receives a portion of the marital home, vehicles, shares, investment properties, and superannuation. However, there is still a possibility for one partner to unintentionally or deliberately disclose less visible classes of assets. For instance, it could be challenging to establish the presence of an asset in the form of significant assets in cryptocurrencies.
In recent years, property settlements involving digital assets have grown increasingly popular in the family court. Even though they cannot be seen or touched, they may be highly valuable. Digital assets are exactly what they sound like: assets held digitally or electronically. Digital files encompass anything from documents to data kept on computers, tablets, or other data storage devices. Therefore, they lack physical substance. These intangible assets are part of the assets that can be divided between both parties in the case of separation in the relationship.
Cryptocurrency in family law property settlements
Step one in settling assets in family law is to compile a list of all assets. For this to work, full and frank disclosure of the spouses’ financial situations is required. It is possible for one partner to suspect the other of hiding assets, yet lack evidence to support this allegation. Cryptocurrency has replaced offshore accounts as the preferred means of hiding their assets. Therefore, it is crucial for both partners to be forthright about their assets and liabilities.
If the owner of a cryptocurrency asset has implemented even the most simple protective measures to cover their tracks, there is still no effective method to prove its ownership. Crypto assets are traceable if one uses a bank account to purchase.
However, when purchasing cryptocurrency through a dark web account or a third party and storing it in a physical wallet, it becomes considerably more difficult to trace ownership of this currency, which will require the funds that were used to be forensically traced. Due to the significant accounting and legal expenses, this procedure takes much longer.
Valuing cryptocurrency for a family law property settlement
The value of cryptocurrency can be converted into dollars using a conventional exchange rate. In recent years, the cryptocurrency’s value has exhibited extreme fluctuations, with some instances of 20% drops occurring within a few hours. This makes it hard to use cryptocurrency valuations in divorce settlements. It might be better to turn cryptocurrency into fiat currency and add it to the asset pool that way, so there’s more stability. There will be times when this isn’t the best course of action. The volatility of the asset value may need to be taken into account in considering the asset division.
Another crucial thing to keep in mind is that anyone who has invested in cryptocurrency as an asset must pay capital gains tax when they sell, trade, or swap it. In the event that the sale of the cryptocurrency is to be incorporated into the property settlement, the capital gains tax liability will be realised and included in the asset pool. Nevertheless, if one chooses to hold onto cryptocurrencies as an investment, the capital gains tax obligation won’t be triggered, and the party may have significant unrealised capital gains.
Court orders will document the decision concerning the handling of cryptocurrencies once it has been decided whether it will be retained or sold. Prenuptial agreements and other legally binding financial documents can also include cryptocurrency.
Gathering evidence for a divorce settlement
Only the owner of a digital asset—a cryptocurrency—has the private key that proves ownership. Many times, people don’t know that their ex-partner has cryptocurrencies as there isn’t much proof of ownership. Anyone with suspicions that their spouse is a cryptocurrency owner should collect any and all proof they can find. Having knowledge about each partner’s assets and responsibilities is important for any relationship, even those who are happy and do not plan to separate, just in case something happens to one spouse and the other needs access to financial records promptly.
Financial documents like bank records and credit card statements that detail cryptocurrency purchases can be presented to family courts as proof. During the discovery phase of a court process, the court may ask to see the owner’s identification and password stored in their cryptocurrency wallet, which could be on a physical device or in an online vault. There is a time-and date-stamped record of the amount and conversion rate since most cryptocurrency transactions are confirmed via email.
As the use of cryptocurrencies grows in popularity in Australia, property settlements involving family law are expected to get more complex. In family law property settlements, the concern is whether forensic experts can keep up with this new technology to guarantee a fair and equitable distribution of assets.
Ready to Safeguard Your Assets? Contact Quill Legal for a free initial consultation!
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