Family Law: Cryptocurrency and disclosure in the Family Court
There has been a lot of recent media attention surrounding Bitcoins and other cryptocurrencies. While most news has focused on the tremendous rise in the value of Bitcoins, this article looks at some of the Family law implications of this financial phenomenon.
What is a cryptocurrency?
A cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.
Some of the main advantages of cryptocurrencies are:
- Freedom of movement: it is generally possible to send and receive cryptocurrencies anywhere in the world at any time, without being restricted by banks or government manipulation.
- Potentially lower fees: Due to the above absence of intervention of third parties, transfers or purchases using cryptocurrencies can potentially be cheaper than international transfers or purchases using traditional currencies.
- Anonymity: Generally, the identity of the user behind a cryptocurrency can remain anonymous. People holding and spending cryptocurrency such as Bitcoins can enter into transactions which do not identify them.
How does it affect Family Law cases?
Because of the anonymous nature of cryptocurrencies and the ease in which they can be transferred, cryptocurrencies can potentially allow parties to hide their assets from their former partner.
The above can occur because cryptocurrencies can be hidden easily compared to funds kept in a bank, as the cryptocurrencies are not tied to a particular account or user. Rather, cryptocurrencies such as Bitcoin are kept in a “wallet” in a similar way that physical cash is.
The result of the above is that once an asset is exchanged for a unit of cryptocurrency such as a Bitcoin or once a Bitcoin is purchased, the ownership of that Bitcoin can potentially be kept secret moving forward. Parties are therefore theoretically able to “siphon” assets into Bitcoins which would thereafter be extremely difficult to locate without the consent of the person or extensive analysis.
What about disclosure?
In Australia, parties have an ongoing duty of disclosure to one another and to the Family Court.
The duty of disclosure requires all parties to a family law dispute to provide to each other all information relevant to the case. This includes information in physical documents or stored electronically. Importantly, it also includes documents that the other parties may not know about. This duty starts with the pre-action procedure before the case starts and continues until the case is finalised.
Under Rule 13.04 of the Family Law Rules 2004 a party to a financial case must disclose amongst other things, any vested or contingent interest in property and any other financial resources. This definition would include cryptocurrencies such as Bitcoins.
The effect of the above is that a party to a Family Law case would be breaching their duty of disclosure if they did not reveal any cryptocurrency he or she held. If a party breaches their duty of disclosure, the Family Court can, amongst other things:
- stay or dismiss all or part of that person’s case;
- order costs against that person; or
- fine or imprison that person if he or she is found guilty of contempt of court for not disclosing the document or for breaching an undertaking as to disclosure.
Attempting to use cryptocurrencies to hide assets is therefore risky and in any event is ethically wrong. Even if the cryptocurrency is not discovered, evidence of assets being siphoned off can be used to make adverse inferences against a party and award the innocent party a greater share of the assets identifiable by the Court.
If you, a friend or family member are going through a separation or divorce and dividing your property, we highly recommend seeking legal advice before progressing your case. Please do not hesitate to contact Lynn & Brown Lawyers for expert advice and assistance.
About the authors:
Robert Pearson was admitted as a barrister and solicitor of the Supreme Court of Western Australia in 2013 and is an experienced lawyer specialising in Family Law matters. Steven is a Perth lawyer and director, and has over 20 years’ experience in legal practice and practices in commercial law, dispute resolution and estate planning.