Cryptocurrency and Family Law Property Settlements
In this modern age, rapid technological innovations and advancements are commonplace. Such is the nature of those advancements that they routinely raise new legal questions and force us to consider the implications on existing laws and legislative frameworks. With the rise in Bitcoin and other cryptocurrency usage, cryptocurrency assets will inevitably need to be considered in the context of family law property settlement matters moving forward.
What is cryptocurrency?
Cryptocurrency is a digital form of currency that is not distributed by any bank. Cryptocurrencies, such as Bitcoin, rely on Blockchain technology, using encryption methods to function as a medium of exchange. This data is stored in Blockchain, maintaining permanent records of transactions.
Legal issues
Disclosure
An ongoing discovery process is ordinarily central to the resolution of family law property disputes. Rule 13.04 of the Family Law Rules 2004 requires parties to financial cases to make full and frank disclosure of their financial circumstances. However, seeking disclosure of transaction records involving cryptocurrencies can be complicated when a party is unwilling to provide them. Owners of cryptocurrency are not easily identifiable and can retain anonymity due to the encryption techniques used to verify the transfer of funds.
Valuation
Calculating the value of the assets and liabilities that form the property pool is made difficult by the unpredictable nature of cryptocurrency. Its value can be ever changing, as it depends upon supply and demand. The volatility of cryptocurrency values might create potential barriers to parties receiving the correct property to which they are entitled. Theoretically, however, valuing cryptocurrency assets should be no different to valuing shares or foreign currency holdings, in which case the values are taken as at the time of settlement negotiations being undertaken, or at the time of a court hearing the matter.
Evidently, some of these issues are beginning to emerge in the courts. In the 2020 case of Powell v Christensen, the Family Court of Australia addressed the issue of valuing cryptocurrency holdings where full and frank disclosure had not been provided and where the cryptocurrency was purchased in contravention of an order restraining the party from dealing with or disposing of property. The value of the cryptocurrency holdings had otherwise decreased significantly since the time of purchase. In that case, the court determined that the purchase value should be adopted for the purpose of settlement.
There is presently still very little case law on these issues, so it remains to be seen precisely how the courts will deal with cryptocurrency in future property settlement matters.
Regulation
The Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2017 recognises the rise in the use of cryptocurrencies as a medium of exchange and the associated risks of misuse. For example, Part 6A of the Act provides for a Digital Currency Exchange Register and requires that digital currency providers be registered with AUSTRAC. However, legal uncertainty remains as cryptocurrencies and their associated dealings continue to develop at a faster pace than legislative responses.
For more specific information on any of the material contained in this article or if you require assistance in relation to any family law enquiry, please contact Christopher Mason on +61 8 8210 1231 or cmason@normans.com.au.
