When you are going through a divorce, part of the process will involve financial disclosure so that you can reach an informed decision about the split of your marital assets. There are other questions on this hub that go into further detail about what that process looks like, but this addresses what you should think about it you have Cryptoassets, such as Bitcoin or an NFT, as part of your disclosure exercise. If you have questions about divorce and cryptoassets, this article is for you.
Firstly, the key to a successful disclosure exercise is to be clear and open with your assets. When it comes to Cryptoassets, this involves a clear breakdown of the assets that you own. You will need to download 12 months of transactions from any trading platform or exchange website that you are currently using or have used within the last 12 months. Each wallet that you own should also be disclosed by way of a 12 month transaction history for each wallet, showing what has entered and left your wallet in the last 12 months.
Public key and private key
If you hold wallets, you will be familiar with the concept of your Public Key and Private Key. You should not provide anyone with the Private Key of your wallets, even in legal proceedings. If a solicitor asks for your Private Key, you should take time to explain that this key gives anyone control over your wallet and so this is why you will not be providing this information. There is a chance that someone may see this as reluctance to provide disclosure but if you ensure that everything else you provide is clear, then you should be fine.
You may want to consider whether you want to provide your Public Key, as this gives someone permanent access to your wallet even after proceedings. It would also show movement from that wallet to anywhere else should you wish to transfer assets to a new wallet, as each transaction is on the public ledger, so you may feel this is more information than you are willing to provide. It is reasonable to request a Public Key in order to keep track of what is happening with a wallet, so the other party may have more justification for requesting this information. If you feel uncomfortable providing this information then discuss it with the other party first to explain your concerns and see if a compromise can be found.
For any NFT cryptoassets that you hold, you should ensure that any documentary evidence of your purchase of the NFT, and the market value of the same, is provided. Do not worry if your NFT is worth a lot less than what you purchased it for, this is common with NFTs as at the time of writing and some may grow in value again or others will remain at their lower value due to the initial excitement of the market in 2020-2021.
Finally, you should ensure that you have fully investigated your tax liability for your Cryptoassets. HMRC guidance states that any trade, even token to token, is a taxable event. It is therefore not the case that transfers to fiat (centralised money) are the only taxable event. You must calculate your tax to avoid a scenario where you are having to transfer Cryptoassets to your ex-partner and you are left with the tax bill as well.
With the financial settlement, be cautious about relying too heavily on retaining your Cryptoassets. They may have a high value but they are volatile and can leave you out of pocket very quickly. You should try to ensure you have a mixed portfolio of Cryptoassets and less volatile assets such as property or liquid capital. Clear and informed legal advice is key in reaching that decision
It is natural to worry that an ex-spouse may be trying to hide assets, especially if you do not understand them very well. Cryptoassets can be quite complicated for people who are not comfortable with technology or investing money, and having a spouse own Cryptoassets can require a lot of trust from the other party.
However, you should not automatically worry that just because your spouse has Cryptoassets, they are doing something untrustworthy. The first thing to do is try to give your spouse the benefit of the doubt that their interest in Cryptoassets is not because they are trying to hide their assets but because this is something they are just genuinely interested in, even if you cannot see the appeal yourself!
If you decide to be legally represented, explain to your solicitor that you believe your spouse has Cryptoassets. Ensure that your representative understands these assets because it is risky to dismiss the importance of them as they can have a high value. You must allow your spouse to provide their own version of disclosure for these assets before you start asking for further information, but there are certain things that you should expect to receive in the first instance.
Wallets are the form in which people can store their Cryptoassets. You have a different type of wallet for each type of Cryptoasset, so if your spouse holds Bitcoin, Ethereum, and Litecoin, they would have three wallets, one for each. They can also have a trading account on an exchange platform, where people sell and trade Cryptoassets. They can have one account which holds all the different types of Cryptoasset, as the trading platform manages the different wallets from behind the scenes.
Wallets have a public address, called a Public Key, that enables anyone to view the contents of the wallet and the movement of the contents in and out. If someone sends tokens to the wallet they use the Public Key. Wallets also have a control code, called a Private Key. This enables the user to move assets out of the wallet. You should not expect your spouse to give you the Private Key to their wallets, but you may request the Public Key if you do not trust the transaction breakdown that they give you.
You should expect to receive 12 months of transaction history for any trading platform that your spouse has used, and 12 months of history for every wallet that they own.
Your spouse may say that they do not want to give you their Public Key, because they are uncomfortable with you watching the movement of Cryptoassets within the wallet itself. It is understandable that someone will not want another individual to have the ability to watch their wallet indefinitely and so you can consider whether the evidence they have given so far is sufficient to illustrate what assets they hold. Your spouse would also be expected to provide updated disclosure if you are going through the Court process and so you would receive an updated transaction history in case you have concerns that any assets would be dissipated.
With the inevitable financial settlement, you should consider carefully whether you want to receive a share of their Cryptoassets. It depends on how many Cryptoassets there are and whether they make up a large portion of the marital pot. They are volatile assets, and the value could increase or decrease significantly from the point you receive them in a settlement. If you feel confident that you can manage them then a transfer can take place, but if you do not want to be heavily involved with investment or a fast moving and high-value market, you may be better offsetting your interest in those assets against other matrimonial assets. You should ensure you receive clear and informed legal advice before making your final decision.
Postscript. Links to organisations and charities that can help and support with finance issues are to be found in these pages. You may also find this article useful as it covers the issues on how assets are split on divorce.