Cryptocurrency in divorce settlements

The future of digital asset division 

In today’s rapidly evolving digital landscape, cryptocurrency has emerged as a credible financial asset. While initially considered niche and speculative, cryptocurrencies such as Bitcoin and Ethereum are gaining acceptance, with individuals and businesses investing in these decentralised assets. 

According to the FSCA’s Crypto Assets Market Study, conducted in 2022, the crypto economy in sub-Saharan Africa is the smallest in the world, accounting for 2.3% of the global transaction volume from July 2022 to June 2023. The US and China are the biggest crypto markets. However, despite low regional average take-up of the technology, closer analysis indicates that cryptocurrency is gaining traction in key countries. Nigeria is ranked second on the 2023 Chainalysis Global Crypto Adoption Index. Kenya is at 21, Ghana at 29, and South Africa at 31. Over 5.8 million South Africans, or just under 10% of the population, currently own crypto assets. It is estimated that 43% of the population will be using crypto by 2030.

Alongside this rise in popularity, cryptocurrencies have introduced new complexities, especially in the context of divorce settlements. High-net-worth couples are more likely to own digital currencies, and family law practitioners who specialise in high-net-worth divorce are facing new challenges around asset division in divorce. We examine the impact of cryptocurrency on divorce settlements and explore the complications of dividing digital assets that don’t apply to traditional forms of wealth, such as real estate, pensions or savings accounts.

The challenge of identifying and valuing crypto assets

One of the most significant challenges in the context of cryptocurrency and divorce settlements is the difficulty of identifying and valuing digital assets. Unlike traditional assets, cryptocurrencies exist in a decentralised environment and are often stored in digital wallets that are not tied to any centralised entity, such as a bank or government. This can make it difficult for a spouse or a legal professional to identify the extent of a person’s crypto holdings, especially if the assets have been intentionally hidden or are held in anonymous wallets.

Moreover, the volatility of cryptocurrencies further complicates matters. Most are not “tethered” – i.e., pegged to a standard currency, such as the US dollar (though there are exceptions, such as the stablecoin Tether). Unlike more stable assets, the value of a cryptocurrency can fluctuate dramatically within short periods of time. A Bitcoin that is worth R500,000 today might be worth R750,000 or R75,000 a few days later. This volatility can create disagreements between spouses and legal teams on how to fairly assess and divide digital assets.

The legal framework — how cryptocurrency fits into South African divorce law

Under South African law, asset division upon dissolution of a marriage will depend largely on the matrimonial regime in place, either in community of property or out of community of property (with or without accrual). In a marriage in community of property, all assets and debts acquired during the marriage are considered jointly owned and subject to an equitable division upon divorce. If the marriage is out of community of property, the terms of the antenuptial contract will determine the distribution of assets. 

Cryptocurrency, as a relatively new asset class, doesn’t have a distinct legal categorisation in South African law. The current approach treats cryptocurrency like any other form of property, falling under the broader category of digital/movable assets. This means that digital currencies such as Bitcoin, Ethereum or non-fungible tokens (NFTs) must be disclosed, valued and divided like traditional assets in divorce settlements. In practice, this requires spouses to be forthcoming about their crypto holdings and provide evidence of the value at the time of divorce. However, because the nature of cryptocurrency allows for anonymous transactions, there are concerns about whether some individuals may intentionally hide their digital assets from their spouses to avoid equitable distribution. Failing to disclose or hiding assets during the discovery phase of divorce proceedings is considered fraud. South African divorce law requires both parties to fully disclose their assets and liabilities and failure to do so is a violation of the duty of good faith in legal proceedings. 

Dealing with crypto in divorce settlements

If you are going through a divorce and have cryptocurrency assets, here are some practical steps to ensure a fair settlement:

1. Make full and honest disclosure. Both parties must be transparent about crypto holdings. If you are unsure whether your spouse has cryptocurrency assets, it’s wise to consult a legal professional to ensure everything is accounted for. Concealing assets can have serious legal consequences.
2. Hire an expert valuer or forensic accountant. An expert is needed to systematically assess the value of crypto assets. A forensic accountant or a cryptocurrency specialist can trace wallets, review transaction histories, and provide an accurate value of the assets at the time of the divorce.
3. Consider future volatility. The volatility of cryptocurrency means that dividing assets at a specific point in time can be contentious. Be prepared for the possibility that the value of crypto assets may shift dramatically during the divorce process. Legal and financial advisers will help devise a plan for fair division.
4. Agree on the method of distribution. In some cases, spouses may agree to liquidate the cryptocurrency and divide the proceeds. Alternatively, if one spouse is more comfortable holding crypto assets, the couple may agree to allocate the crypto holdings to one party, while the other party is compensated through other means, such as a larger share of the matrimonial home’s value or more generous maintenance.

Consult with a family attorney

This article provides an overview of the division of cryptocurrency in divorce but does not constitute legal advice. Each situation is unique and requires careful financial, legal and tax planning. Consulting with a family lawyer such as SD Law and a tax adviser can help ensure a fair and tax-efficient division of crypto assets.

SD Law is a firm of divorce attorneys based in Cape Town, with offices in Johannesburg and Durban, who are experienced in high-net-worth divorce and asset division. If you are considering divorce and are worried about your crypto holdings, or just want to discuss your options, call family lawyer Simon Dippenaar on 086 099 5146 or email sdippenaar@sdlaw.co.za for a confidential discussion. 

Further reading:

• Investment division in divorce
• Protecting high-value assets during divorce
• Dealing with hidden assets in divorce
• Property division in divorce

Divorce Attorney Cape Town

http://divorceattorneycapetown.co.za/

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