Cryptocurrency and divorce (England & Wales)

If you’re currently going through divorce (or dissolution) proceedings and you are planning on formalising your financial arrangements through a financial remedy order or consent order, you will need to disclose everything you have in order for the court to judge whether it's been separated fairly. So how does cryptocurrency factor into this?

As I’ll explain in more detail below, cryptocurrency is a digital currency and is therefore classed as an asset. I’ll briefly explore what cryptocurrency is and how it relates to a divorce financial settlement, implications of this, some potential red flags and places to find additional help.

What is cryptocurrency?

In its simplest terms, cryptocurrency refers to digital currency , which is an alternative form of value created using encryption algorithms and without the need for third-party confirmation (ie. a bank). Rather, than a bank verifying that someone has enough funds for a purchase, cryptocurrency is based on peer-to-peer transactions. These occur through sharing passwords connected to ‘digital wallets’, which in turn are used to store cryptocurrency. Digital wallets can be stored on mobile phones or computers and can be used to buy commodities.

Cryptocurrency transactions are documented through something called a ‘blockchain’, with each new transaction representing a new ‘block’ hence its namesake. A record of these transitions is held permanently through a complex network of computers, making it almost impossible to manipulate.

As another form of payment, anyone can buy or sell cryptocurrency or can send or receive it, however, they must have access to an account that supports digital currency transactions (digital wallets). Whilst the assumption is often that cryptocurrency is privacy-focused, and therefore anonymous, many are completely trackable. However, cryptocurrency can also be obtained through a process known as ‘mining’. This is problematic as it’s then difficult to render where it originally came from.

There are essentially two markets for cryptocurrency:

• The traditional exchange approach is where you buy and sell assets through a regulated entity like Coinbase.
• The decentralised marketplace.

The most well-known types of cryptocurrency are Bitcoin, Litecoin and Ethereum, however, there are countless more that enter the market daily.

Cryptocurrency is renowned for being extremely volatile in terms of its fluctuating value, both regularly and abruptly. There can be a lot of variety, particularly given the recent birth of ‘Non-fungible tokens’ (NFTS) and equity-based projects.

Before I explore the implications of cryptocurrency and divorce, I will briefly outline how finances are typically dealt with in a divorce financial settlement.

What is a divorce financial settlement?

If you are planning on getting divorced, there are typically three things you need to sort out:

The divorce:

In order for your divorce to be finalised, you need to have completed and submitted the divorce application. If you made a sole application or your divorce was issued before the introduction of No-fault divorce (6th of April 2022), you will need to wait until your spouse has returned the acknowledgement of service form before proceeding. After the 20-week reflection period built into the No-fault system, you can submit your Condition Order (formerly the Decree Nisi) application, once granted you will receive a certificate stating you are entitled to divorce. At this point you can submit a consent order (optional) and then six weeks and one day after the Conditional Order (Decree Nisi) pronouncement date, you can submit your Final Order (formerly the Decree Absolute) application. Generally, no court attendance is necessary and you can make your application for divorce online. Once you receive your Final Order (or Decree Absolute) certificate you are legally divorced, however, you may wish to formalise your financial arrangements prior to this.

Child arrangements:

There is absolutely no requirement to formalise these , and in general, couples are encouraged to resolve these matters between themselves rather than involving the court. In the event that there are disputes that cannot be resolved with the assistance of a divorce specialist or mediator, then a court application can be made and a judge will ultimately determine the arrangements.

Financial arrangements:

This refers to dividing the matrimonial assets between you in order to determine who gets what in a fair manner. These are usually formalised through a consent order (if you agree), or via determination by a Judge at court (if ultimately you cannot agree). You can get help making these arrangements through coaching or mediation.

Why do you need to formalise your financial arrangements?

Whilst it is optional for couples to formalise their financial arrangements through a consent order, it’s important to note that divorce doesn’t prevent financial claims in the future. If you finalise your divorce and then win the lottery the very next week, there remains the risk of a claim against you by your ex-spouse. A financial court order will usually contain a clean-break clause that prevents future claims (outside of those agreed upon in the terms of the order).

Another point to consider is whether you wish to share your pension. Without obtaining a financial order, a pension share would not be possible. You can read our guide on pensions or our pension sharing order FAQs for more information.