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Cryptocurrencies have been around for a fraction of the time that physical currency has, but they are slowly becoming more common place as more people invest their money into them and more companies accept them for use in transactions to purchase goods and services.
In its simplest form cryptocurrency is a currency that does not have physical form (unlike paper money) and is held digitally often in a digital wallet. Cryptocurrencies are typically not issued or managed by a central authority e.g. a central bank like the Bank of England or a Government. Instead issuing and managing is done through a peer-to-peer network over the internet and transactions are recorded in a public digital ledger.
Well-known types of cryptocurrencies are Bitcoin, Ethereum and Dogecoin.
A Non-Fungible Token (NFT) is a digital asset that confirms ownership of a unique physical or digital item. An example of an NFT is Twitter founder Jack Dorsey’s first-ever tweet which sold for $2.9 million in March 2021. Another example is the NFT of the video ‘Charlie Bit My Finger’ which you may remember being one of the internet’s most viewed videos. This sold for £500,000 back in May 2021.
NFTs are limited in quantity and have unique identifying codes. Often there may only be one in existence, like the examples given above.
Cryptocurrencies and NFTs are treated like other assets such as property or cash by the Family Court and are therefore subject to the court’s powers e.g. orders for sale and transfers.
Parties must produce full and frank financial disclosure when dealing with their finances on separation. As part of the disclosure process when completing a Financial Statement (known as a Form E), either on a voluntary basis or by court order, you should disclose any cryptocurrencies and NFTs under section 2.14 set out below:
Although the above section does not explicitly include cryptocurrency or NFTs it is not exhaustive and is the best suited place for where a digital asset should be disclosed. It would be a welcome edition if cryptocurrencies and NFTs were added to the above list so that separating parties can be clearly informed that they must include them in their disclosure or at least added as an addition to the Guidance Notes for Form E which are unfortunately devoid of information.
It is worth checking through your partner’s bank statements when disclosed as there should be a money trail if there has been a recent purchase but remember only 12 months’ worth of bank statements are typically disclosed. Often if the digital asset is being traded on a third-party platform, then there will be platform fees charged for this service which is an indication that your partner owns some digital currencies. You can raise questions regarding your partner’s disclosure which will help you to ascertain whether your partner has failed to disclose a digital asset.
If it later transpires that your partner had a digital asset, and this was not disclosed, then there is a possibility an application for setting aside an order could be made on the basis of material non-disclosure. A problem which may be faced is due to the volatile nature of cryptocurrency at the time of disclosure the currency could have had little value and only after an order, by consent or otherwise, has been made could it have substantially increased in value. This is unfortunately something which has not yet been tested in the family court. Other implications of failing to disclose an asset are explained in another blog here: https://www.familylawpartners.co.uk/blog/disclosure-of-assets-in-divorce-what-do-my-partner-and-i-need-to-disclose-to-one-another.
Our specialist team advise on the full spectrum of financial assets, including cryptocurrencies and NFTs. Please get in touch to discuss your own individual situation.