The emergence of NFTs and cryptocurrencies

The emergence of crypto technology has led to a new digitally driven, decentralised asset class that has caught the attention of both experienced and novel investors. As crypto-assets gain in popularity, the issue of identifying, valuing and dividing that property in the context of family law proceedings has become more important than ever.

When you think of a crypto-asset, you may have the cryptocurrency Bitcoin at the forefront of your mind. Bitcoin is a crypto coin and form of currency which currently holds the largest market capitalisation in the world. However, there are many other different forms of cryptocurrencies and also other difference forms of crypto-assets such as non-fungible tokens (NFTs) which are unique assets and can be anything from an art piece, a domain name or music piece, to name a few. Crypto-assets have many different definitions and uses. What crypto-assets do have in common is that they are intangible and digital assets that operate on blockchain technology and have a fixed supply.

These types of assets do create some complexity in a family law context, including specifically the anonymity of ownership of the assets.

The obligation and duty of each party in a family law matter to provide full and frank disclosure is fundamental in financial cases. Obtaining accurate financial disclosure from a party can often be a difficult task, especially if that party does not want to provide that information. This process can be made even more difficult when it comes to intangible digital assets.

Unlike other financial assets, which usually are attached to a third party, such as a bank and the details of which can therefore be subpoenaed, there is no third party to assist with tracing the ownership of crypto assets. However, this process is not impossible as a majority of crypto assets are commonly first obtained through the use of a traditional currency.

Although digital and crypto-assets, including NFTs or cryptocurrencies, were not necessarily contemplated by the legislators during the drafting of the Family Law Act 1975 (Cth), they are nevertheless considered to be an asset with a realisable value which may be considered in the pool of property available for division between separating parties.

The value of cryptocurrencies is volatile, compared to traditional investment assets. However, there are crypto asset exchanges which can be used to assist in assigning value.

Please contact Pearson Emerson Family Law for further advice and assistance.

Written by Sarah Yigit