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February 23, 2023updated 17 Mar 2023 1:28pm

Courts must learn to evaluate crypto assets – specialist barrister

By Spear's

The significance of crypto assets is being underestimated in HNW divorces, according to specialist matrimonial finance barrister Marc Samuels

Crypto assets were once seen as a niche asset class, the preserve of sophisticated early adopters and hobbyists.

Today, they are an increasingly commonplace feature of individual investment portfolios, sitting alongside traditional assets such as shares, pensions, and real property.

This transition into the mainstream means they are now falling into wills and estate management and, increasingly, into financial remedy proceedings ancillary to divorce.

This has brought new challenges as legal practise tries to keep pace with emerging technologies.

An estimated one billion people use cryptocurrencies globally. In the UK, approximately 1.5 million people owned crypto assets in 2018. This figure rose to 9.8 million in 2021, an increase of some 650 per cent in crypto adoption.

As a result, civil courts in England and Wales have been left grappling with crypto issues over the past few years, largely in the context of hacking cases and cyber crime. This has involved delving into questions that at first blush seem purely academic, such as ‘are crypto assets property?’, and ‘what does the word “property” mean in a legal context’?

bitcoin and gavel

Family courts need to catch up with crypto assets

Things have been ostensibly quieter in the family courts. While many cases now feature crypto assets, there is yet to be a Family Court authority on how this type of asset should be dealt with.

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Ownership of crypto assets may well have ramifications for litigation strategy in a divorce. For example, the potential for a spouse to deny ownership of crypto assets, or try to dispose of them.

If a spouse’s crypto wallet is non-custodial and ‘cold’, i.e. not held on an online exchange or platform, will there be evidential difficulties in proving ownership or existence of the crypto assets? Will one party simply say, ‘they don’t exist’?

While family courts are familiar with volatility in the context of shares and similar assets, extreme fluctuations in the crypto market bring their own challenges. How can divorcing parties be confident settling their assets, perhaps offsetting one type for another, when the value of the holdings could fluctuate wildly from one day to the next?

Crypto assets challenges facing lawyers

These challenges are not insurmountable, but they are prompting lawyers to reconsider traditional approaches to see whether they apply satisfactorily to this burgeoning asset class.

In particularly contentious divorces where assets may have been squirrelled away or dissipated, we are likely to see collaboration between legal teams and technical experts specialising in tracing and blockchain analytics.

The result is that for divorces featuring crypto assets, the legal strategy will need to be defined earlier to ensure that appropriate steps are taken to locate, value, and preserve the assets at hand.

Marc Samuels is co-author of Cryptocurrency in Matrimonial Finance and a barrister at 36 Family.

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