Divorce can be one of the most emotionally and financially difficult times in a person’s life. When cryptocurrency is involved, it can add even more uncertainty and complexity.
Digital assets like bitcoin, Ethereum and NFTs are no longer niche investments. With nearly one in four Australians holding cryptocurrency, these assets are showing up more often in separation and property settlements.
Unlike traditional property, cryptocurrency can be unpredictable, difficult to trace and not always easy to understand. This can make dividing it in a divorce more challenging than expected.
If you or your former partner holds cryptocurrency, it helps to know how these assets may affect your situation. In this article, we outline five important things to consider so you can move forward with more confidence, support and clarity.
1. Full disclosure is mandatory, and non-compliance carries serious consequences
In all family law matters, both parties are required to provide complete and honest information about their financial position. This includes any cryptocurrency, whether it is stored on an exchange, in a private wallet or through a decentralised platform.
Trying to hide or avoid disclosing crypto is a serious issue. The Court can request wallet addresses, exchange statements or transaction histories. If needed, forensic experts can be brought in to trace movements and uncover hidden digital assets.
If a person fails to disclose cryptocurrency, the Court can respond in several ways. It might order that person to pay legal costs or draw assumptions that more assets exist than have been revealed. In some cases, it may even increase the size of the asset pool based on what the Court believes has been hidden.
Being open from the beginning helps avoid delays and conflict. It also shows the Court that you are approaching the process in good faith.
2. Valuation challenges require professional expertise
Unlike most traditional assets, the value of cryptocurrency can rise or fall significantly in a short period of time. This volatility makes it harder to determine a fair value when it comes time to divide the asset pool.
In family law, assets are usually valued as close as possible to the date of trial or settlement. However, with cryptocurrency, multiple valuations might be needed throughout the process to reflect any major changes.
Specialist valuers often consider more than just the market price. They may look at liquidity, transaction fees, tax implications and whether selling the asset would influence its market value. Some cryptocurrencies may also be locked in smart contracts or staked, which adds another layer of complexity.
For large holdings, selling a significant amount can sometimes reduce the value that is actually received. This is something the Court may take into account when working out a just and equitable outcome.
3. Dividing crypto assets takes technical care
Unlike money in a bank account, cryptocurrency cannot simply be split by a court order. Transferring crypto requires private keys, seed phrases and access to digital wallets. If one party does not cooperate or the correct access is not available, dividing these assets becomes more difficult.
There are a couple of common approaches when it comes to dividing cryptocurrency in a divorce proceeding. One is for one party to transfer a set amount of cryptocurrency directly to the other party’s wallet. This works best when both people are cooperative and have the technical knowledge to complete the transfer.
Another option is to sell the cryptocurrency and divide the proceeds in Australian dollars. This approach can be more straightforward but might trigger tax obligations or be less favourable during a market downturn.
Each situation is different, and the approach should reflect the types of assets held, the level of cooperation between parties and any tax or legal implications.
4. Tax implications must be carefully considered
The Australian Taxation Office treats cryptocurrency as property, which means it is subject to capital gains tax. If you sell, transfer or dispose of crypto as part of a property settlement, it may trigger a tax event.
There are circumstances where rollover relief can apply, allowing assets to be transferred between spouses without triggering capital gains tax. However, this relief is not automatic. It depends on meeting certain requirements and having a formal property settlement in place, such as a court order or binding financial agreement.
It is also important to keep clear records. Knowing when the crypto was acquired, how much was paid and when it was transferred can make a big difference when it comes time to report to the ATO.
Speaking to a tax professional with experience in cryptocurrency is often a valuable step in the process.
5. Settlement agreements should address crypto-specific risks
Because of the unique nature of cryptocurrency, settlement agreements involving these assets should include protective measures. This might mean restraining orders to prevent one party from moving crypto assets during proceedings or including clauses to deal with lost access details like private keys.
It is also wise to plan for volatility. If the value of a cryptocurrency changes significantly between the agreement and when the transfer takes place, the financial impact could be large. Some agreements include a valuation range or adjustment mechanism to manage this risk.
Clauses that allow for changes, or for further action if undisclosed assets come to light, can also help protect both parties. In more complex matters, having technical or financial professionals involved in drafting these agreements can add extra peace of mind.
Take control of your financial future
Dividing cryptocurrency in a divorce is not always straightforward. These assets require careful planning, transparency and a clear legal strategy to make sure your settlement is fair and your financial future is protected.
At Loukas Law, we support individuals and families through property settlements involving digital assets. Our team provides the legal clarity and emotional support you need to move forward with confidence.
If cryptocurrency is part of your separation or divorce, you don’t have to navigate it alone. Reach out to our team for clear, compassionate advice tailored to your unique situation. We’re here to help.