Jessica Rush: Divorces can take months or even years, and this can be a real problem when the value of cryptocurrency changes massively
Jessica Rush is an attorney at law firm Howard Kennedy.
Crypto can be a minefield in a divorce, especially now that its value has fallen.
If you or your ex-spouse owns crypto, it can come as a shock to see how far it has fallen, especially if you didn’t know or consent to family money being used to buy it in the first place.
There are some issues surrounding crypto that have not yet been tested in the courts, but they are still subject to the same principles of divorce law as all other assets, so below we look at some of the pitfalls.
If your ex bought the crypto, should he suffer the loss after recent falls?
Cryptocurrencies are incredibly volatile. Depending on how much was bought, this could mean less to split in the event of a divorce after recent falls in value.
You might think your ex has to bear that loss – but there is a high threshold of “recklessness” that must be met before the courts can determine that the “wasted” money must be added back to the pot of available assets to be recovered. divided.
That said, when it comes to crypto, there is no specific court ruling on it yet.
Of course, your ex-husband may be willing to take their crypto because they think it will do well in the future – presumably that’s why they bought it in the first place.
In that case, they may want more than 50 percent of the paper value of the asset because they are taking on a greater risk.
Whether this is a good argument depends on many factors, such as your needs and the other resources available.
Can you refuse to accept crypto held by your ex in a divorce settlement?
Many settlements are reached out of court, using alternative forms of dispute resolution.
It’s up to you whether you want to make cryptocurrency a redline problem (you take none of it), split the risks (you each take half), or seek a larger share of other assets as a sweetener for taking over the market. majority of the risk.
If you are risk averse, letting your ex-spouse take over the riskier assets and take safer ones for you may be right for you.
If you really can’t agree, you have to go all the way to a final hearing where a court will decide for you, but this poses the problem of valuation.
Crypto can be a minefield in a divorce, especially now that its value has fallen
How is crypto valued in a divorce and at what point is it determined?
The value will most likely be determined by the date of a final hearing, or if a settlement is reached through negotiations on the date of the most recent round of disclosure updates.
It is the duty to provide continuous updates throughout the process.
This is because assets you divide are likely to fluctuate in value over time, and during a lengthy separation there may be several points at which the parties reassess what is available.
Divorces can take months or even years, and this can be a real problem when the value of cryptocurrency changes dramatically.
Imagine you own four bitcoins and you started your divorce process on December 31, 2021 – they were worth £139,964 at the time, enough money to buy a home in some parts of the country.
You negotiate and reach an agreement with your ex-spouse on May 4, 2022, and you agree to take all the cryptocurrency. At the time, four bitcoins were worth £125,975.
This agreement will be sent to court and will become a final court order on May 13, 2022. Then the bitcoins would have been worth £95,335, only 68 percent of the value when you started the process.
Now the value of that cryptocurrency may rise again, but if you have to cash in on your investment to buy a new property after your divorce, you can get really stuck.
The fall in value can make the difference between being able to buy a home immediately after a divorce and having a mortgage.
When negotiating, you should consider the practical implications of the fluctuating value of your bitcoins.
What if your cryptocurrency wallet is frozen or even lost due to fraud?
Again, the consequences will depend on the facts.
Assets that are lost and cannot be recovered are not available to be divided in divorce, but may be subject to an add-back claim, meaning they will be added back to the pot to be divided and go to the person which she ‘lost’ – again, it is a high threshold for this claim to succeed.
It is very possible that you will have to discount the lost crypto completely.
If a wallet has been frozen but a valuable asset has yet to be recovered, then this is still an asset for divorce purposes, but if restoring that value is a long way off, it is a risk that may need to be accounted for in the final settlement .
Perhaps a more important question is whether you can verify whether the freeze or fraud actually occurred.
In a divorce, both parties have a “duty to full and candid disclosure,” so you can look for evidence of this if you’re not sure your ex-spouse is telling the truth.
What if you accepted crypto in your divorce settlement, but now its value has fallen?
It is possible for a court to void a divorce settlement if new events occur shortly after it is made that invalidate the main tenets of the writ.
There is no set timetable for new events to take into account as it is all moot and depends on the circumstances.
Eventual events must be ‘unforeseen and unforeseeable’. However, losing a lot of value to your cryptocurrency may not be enough.
Currencies such as bitcoin have experienced both major appreciations and major declines, so there’s a good chance a court would say extreme swings were foreseeable.
That’s not to say there isn’t a chance to put aside a financial settlement because the crypto market has fallen or even failed completely, but it would be a high bar to make clear and very dependent on the facts.
Factors such as proximity to the final settlement, your ability to meet your basic needs such as post-drop housing, the other assets available to you, or the fees already incurred for the risk of crypto in the final settlement can all play a part. .
However, you can vary the maintenance according to your ex-spouse or children if the change in the cryptocurrency markets has a significant impact on your finances.
What Should You Do If Your Divorce Relates to Cryptocurrency?
If you or your ex-spouse need to divide something as complex as cryptocurrency in your divorce, you should seek the advice of a lawyer with relevant expertise.
If you’re not sure, before hiring a lawyer, you can always ask if they’ve worked with crypto before and how the drop in value will affect their advice.
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