Crypto Assets and Divorce, what it could mean for you

The division of assets on a divorce is one of the most contentious issues facing both couples and family lawyers.  With the advent of digital assets such as cryptocurrencies lawyers are having to consider digital assets and their division in the dissolution of a marriage more and more frequently. 

With the rising value and popularity of crypto-assets their importance in a divorce cannot be understated. The lawyers job has become increasingly more difficult and they must ensure that they have properly identified all their digital and crypto-assets. Crypto-assets can include cryptocurrencies and tokens, digital manuscripts, musical recordings, artwork, photographs, online gaming accounts, online gambling accounts, online gift cards, Domain Names, social media accounts, prepaid accounts, Paypal, Revolut or similar accounts, and other digital assets such as virtual pets.

Crypto-Kitties

While the notion of a virtual pet such as a crypto-kitty might seem absurd their value must not be underestimated.  One such crypto-kitty sold for more than $100,000 on 2 December 2017 and the market cap of the crypto-kitty market place stands at nearly $6 million at the time of writing.  It with these valuations in mind that the lawyers dividing crypto-assets must consider the two most difficult aspects. Firstly, their volatility and secondly their privacy and secrecy meaning crypto-assets are difficult to trace and hard to value.  Although parties have a duty to provide full disclosure of their assets in a divorce, the pseudo-anonymous nature of crypto-assets could potentially make them a safe haven for spouses wishing to hide their assets from their spouse in a divorce.

Privacy

With divorces being acrimonious in their nature if one party decides not to disclose the true value of their holdings in a divorce, it serves to add time and expense to the proceedings. The lack of a physical paper trail is a new phenomenon and something family lawyers have not had to deal with in the past. Ideally family lawyers would enlist the help of a qualified technology lawyer to ensure their clients’ interests are protected and a proper audit of a partners crypto-assets can be undertaken, in more extreme cases a digital forensics expert can be brought in to search through the spouse’s email to determine what transactions have taken place. Technology lawyers know that there are tools to trace crypto-assets. The difficulty is that some family lawyers do not necessarily understand crypto-assets and a lawyer needs knowledge of the asset you’re trying to get hold of.

Volatility

Valuing crypto-assets is not as straightforward as ordinary investments, such as property or shares, the constant change in value means valuations will need to be made at regular intervals throughout a divorce, with a valuation agreed upon on the date of the final hearing.  Potentially a fortune could be worth significantly less by the time the decree of divorce has been granted. Another method in splitting the assets is to divide the number of assets and then each party takes on the volatility risk of their portion.

Irish Courts

As crypto-assets are a relatively new asset class the Irish Courts do not have a wealth of knowledge to draw upon and they are relying on lawyers to propose solutions to the various issues that arise. The arsenal at the disposal of the Irish Courts to secure assets, such as injunctions, may be difficult to administer in the case of crypto-assets due to their decentralised and global nature.

Conclusion

In Ireland, by marked contrast to the most recent position in the US, the Central Bank of Ireland has confirmed that crypto-assets are not currently legally regulated. Accordingly, it would appear that they do not fall within any traditional definition. However, there are various sources confirming that there will be regulation brought in at a European level that will oblige member states to legislate for the regulation of crypto-assets, but for now, dividing the crypto-kitty may be as difficult as dividing the real kitty. 

Prepared and edited by Andrew Carroll, Journalism MA in DIT.

Susan Cosgrove is principal of Cosgrove Gaynard solicitors and Emmet Creighton is a technology lawyer in Cosgrove Gaynard solicitors based in Dublin , Ireland .

Fintech  is a particular area of expertise of the firm. We have extensive experience in this area in particular in relation to blockchain and ICOs providing an innovative and practical solution driven service to clients . We are at the forefront of this area of law being the first firm to confirm they have acted for a number of ICOs in Ireland.

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