The decentralized nature of cryptocurrencies makes it difficult to know how much someone owns and where it is stored. Photo / 123rf
OPINION
Q: I separated from my partner of five years last month. We both work in well-paid positions in the financial sector. We never bought a property together, we just rented it.
All my savings went into term deposits at Westpac and the balance in these accounts is now around $300,000.
My partner often talked about cryptocurrencies and I am aware that he traded them frequently. He stayed up late at night trading on his laptop.
We will soon take steps to divide ownership of our relationship. I am worried that I will lose half of my savings and that my ex-partner will hide some or all of his investments so it won't be a fair division of assets.
A: Your concerns about your ex-partner's cryptocurrencies are valid. The real appeal of cryptocurrencies for many cryptocurrency owners is their secretive nature: they are difficult to track and trace.
Cryptocurrencies are becoming a popular asset choice (some online statistics indicate that almost a quarter of Australians now own them), so they are likely to pose a problem for many couples separating. The three most important cryptocurrencies are Bitcoin, Ethereum and Tether.
In theory, a cryptocurrency should be treated no differently than any other related real estate asset. Both parties must provide full and frank disclosure of all cryptocurrencies they hold. If either party fails to do so, the other should be able to obtain a discovery order from the Family Court requiring the production of a financial disclosure.
Discovery orders can be issued against an ex-partner personally and also against a third party (such as a bank, company, accountant, etc.). However, it is difficult to enforce discovery orders seeking cryptocurrency documentation. This is because:
1. Cryptocurrencies are often purchased through online exchanges, of which there are many, and only a few are based in New Zealand. The exchange must contain details of the cryptocurrencies traded. However, if a former partner is not forthright in disclosing his holdings, it could be difficult to determine which exchange he used. Even if he could locate the exchange, it would be uncertain whether an international exchange would comply with a discovery order from a New Zealand court.
2. Cryptocurrencies are decentralized digital networks, so there is no single person or entity that controls them. They are not usually linked to a specific entity. Therefore, a third party order for the discovery of Bitcoin information, for example, would not help since there is absolutely no one to organize the production of that information.
3. Some people choose to store cryptocurrencies in non-custodial digital wallets. In this case, they are the only ones who have the digital key to access the cryptocurrencies. They could simply refuse to provide the requested information or say that they no longer have access to the wallet.
There is little case law on cryptocurrencies in property disputes in New Zealand. Apparently the same thing happens abroad.
Tools to help you
I suggest that you and your attorney (possibly with the help of a forensic accountant) carefully review all of your ex-partner's bank account statements for any unexplained withdrawals or transfers of funds from the accounts to cryptocurrency exchanges. The funds may have traveled through a foreign bank account.
Bank accounts should at least provide a rough indication of the โinitial investmentโ in the cryptocurrencies and the date they were acquired. From there, it could be difficult to trace any subsequent cryptocurrency trades.
There are specialized blockchain analysts that you can hire to track cryptocurrencies if you have any information, such as a starting address of the cryptocurrency. Professor David Hodson (who has considered the issue in an international context) suggests that with this information one could:
1. Put pressure on the other party to provide information; I
2. Ask the court to make "judicial inferences" and combine this with "compensation", that is, asking the judge to award you a larger share of the known assets because it is clear that your ex-partner has invested in cryptocurrencies and it is impossible. to discover the value of the cryptocurrency. In the context of New Zealand relational property law, this could be giving rise to an argument that there are โexceptional circumstancesโ which make it repugnant to justice for assets to be shared equally.
Jeremy Sutton is a solicitor and family lawyer at Bastion Chambers.
