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Cryptocurrency, Family Law and You

by | May 18, 2023 | Family Law

Cryptocurrency was the hot trend in investment and speculation in recent years, and while the widespread buzz in the market has subsided, for many couples an investment made at that time may need to be dealt with in the event of a separation.

Cryptocurrency (or crypto) is a form of digital asset that aimed to replace or supplement currency backed by governments. In simplified terms, the blockchain is in effect the method of recording all transactions about a particular type of crypto, like a large public ledger. Crypto and blockchains inspired passion and caution in equal measure amongst different sections of society.

One of the characteristics of cryptocurrency however is the high volatility – the rate at which the value might change. This could and continues to be much higher than most shares in companies in traditional stock markets. What this means for family lawyers is that we have to consider how to most appropriately protect you, our clients, from risk in relation to dividing up a pool of assets with your partner that incorporates some crypto.

The most common approach to dividing a pool of assets is to create that pool (say, $1,000,000), then apply a percentage (say 60%). That means you might get $600,000 of value. Then if you want to keep an item, valued at say $50,000, then that gets deducted off your ‘take’, until all the assets are assigned and we see whether there is an adjustment in cash that needs to be made to get us to the right percentage.

But with highly volatile assets, it is much safer not to assume a value. What if you do your mediation on the basis of a value then that asset doubles in value over the weekend, after you’ve signed a deal but before it has been made by a Court? Issues of abiding by agreements and reneging of deals that you paid significant funds to finalise come up.

The safest way then is to conduct ‘in specie’ transfers. That is just a lawyer using a Latin phrase to say that we transfer part of the actual asset, instead of giving it a dollar value. You might want to pull out the crypto from your big ‘pool’, and just transfer 60% of that crypto to you, while the other person takes 40%. That way, you each take the gains and the losses fairly. That might be the way to even structure a pre-nup or financial agreement.

To discuss how this, or other issues arising out of more complex asset holdings, might need to be resolved for your matter, contact our friendly and knowledgeable team of family lawyers at Nevett Ford Melbourne, on 03 9614 7111 or melbourne@nevettford.com.au