As the world of digital assets continues its rapid evolution, courts across various jurisdictions have had to grapple with how to treat cryptocurrency. These virtual assets, while offering benefits such as decentralisation and privacy, also introduce legal complexities, particularly in the context of financial settlements. Whether in divorce proceedings, business disputes, or insolvency cases, questions around the discovery, valuation, and division of cryptoassets have become increasingly prominent.
With the total market capitalisation of cryptocurrencies having exceeded trillions of pounds globally in recent years, it is unsurprising that these digital holdings are now frequently featuring in legal disputes. Courts are tasked with ensuring fairness while being mindful of the volatile, often opaque nature of digital currencies. This has led to an evolving body of case law and judicial opinion which seeks to define and regulate these novel assets in alignment with existing legal principles.
Classification and Recognition by Courts
One of the first challenges that courts face is determining the legal status of cryptocurrencies. Are they money? Property? Mere digital code? In jurisdictions like England and Wales, recent case law has brought greater clarity. In the landmark case AA v Persons Unknown (2019), the High Court explicitly recognised Bitcoin as property. This was a pivotal decision that allowed for cryptocurrency to be treated similarly to more traditional assets in legal proceedings.
This classification aligns with the guidance of the UK Jurisdiction Taskforce (UKJT), which concluded that cryptoassets can be considered as “property” under English law. This recognition is crucial because only assets recognised as such can be subject to proprietary remedies, including seizure, freezing orders, and division in settlements.
Notably, the property status of cryptocurrency allows it to be factored into the redistribution of assets during divorce or civil partnership dissolution, or the equitable resolution of debts in insolvency cases. However, recognising a cryptoasset as property is merely the first step in a series of legal hurdles that courts and litigants must overcome.
Discovery and Disclosure Challenges
Once a court acknowledges the legal status of cryptocurrencies, the next issue is establishing ownership and locating the assets. Unlike traditional financial holdings, which are typically held by banks or registered financial institutions, cryptocurrencies are often decentralised, pseudonymous, and held directly by individuals in personal wallets. This presents significant obstacles in tracing and verifying ownership.
In financial settlements—particularly in family law cases—it is essential that both parties disclose their full financial portfolios. However, due to the nature of cryptocurrency, parties withhold or obscure their digital assets more easily than other types of property. This has prompted courts to take robust approaches. For example, courts may impose freezing orders against known wallets, compel parties to produce wallet addresses, or assign forensic experts to trace crypto transactions through the blockchain.
The courts have also shown a willingness to draw adverse inferences against parties who fail to provide complete disclosure of cryptoassets. Much like in situations involving off-shore accounts or hidden cash savings, non-disclosure can significantly influence the court’s assessment of the party’s credibility and the fairness of settlement outcomes.
Valuation Complexities
Another core issue in dealing with cryptocurrency in legal settlements is assigning an accurate value. While cryptocurrencies like Bitcoin and Ethereum are traded on public exchanges with visible market prices, their prices are notoriously volatile. A digital asset might lose or gain 20% of its value in a single day, making the timing of valuation a contentious issue.
Courts must decide whether to value cryptoassets at the date of separation, the date of trial, or the date the settlement is finalised. Each option carries different implications, especially if the volatility of the market has significantly changed the asset’s value within that timeframe.
In some jurisdictions, courts have shown preference toward snapshot valuations using averages from recognised exchange platforms, while others have opted for valuations provided by expert witnesses. The chosen method can have serious implications for equitability—if one party is awarded crypto at its peak value, only to see the market collapse shortly after, they may feel unjustly treated.
To mitigate the possibility of perceived unfairness due to price swings, courts have also considered offsetting digital assets with more stable, tangible property (such as real estate or cash) to balance the risk impact. However, the challenge remains to create a fair division that reflects not only value but also liquidity, volatility, and possible future gains or losses.
Division of Cryptocurrency in Divorce and Civil Partnership Dissolution
One of the most common circumstances in which cryptocurrencies are addressed in legal settlements is during the dissolution of a marriage or civil partnership. In England and Wales, the starting point in financial settlements is an equal division of matrimonial assets, although the final decision will depend on fairness, the needs of each party, and the nature of the asset.
Cryptocurrencies add a layer of complexity because marital property can include not only regular investments and pensions but also speculative assets like crypto. These assets may have been acquired jointly, gifted between spouses, or even amassed individually outside the marriage but still considered part of the matrimonial pot under English law.
If a spouse is awarded a share of the other’s cryptocurrency portfolio, practical issues arise regarding how this transfer should occur. If the crypto is held in a private wallet with no third-party custodian, the transferee may need to be given access to the private keys, raising both technical and legal risks. Courts have also explored alternative arrangements, such as ordering a party to liquidate part of their cryptocurrency holdings and transfer the cash equivalent, although this can trigger tax implications and potential losses due to unfavourable market timing.
Where one party is found to have concealed ownership of cryptoassets—or failed to report recent acquisitions—courts can issue further orders or initiate proceedings for contempt, reinforcing the requirement for full and frank disclosure.
Business and Commercial Disputes Involving Cryptocurrency
Cryptocurrencies also feature in business disputes, particularly in partnerships, joint ventures, and contract disagreements. When commercial relationships dissolve, digital assets that were jointly held or invested become subject to division similar to any other asset. Yet, the task of tracing, valuing, and allocating those cryptocurrencies can be arduous.
For instance, in cases where multiple parties co-invested in Initial Coin Offerings (ICOs), courts have had to determine not only the amount contributed by each party but also the nature of returns derived from staking, rewards, or airdrops— all complex aspects unique to blockchain-based investments.
Many commercial disputes have required the assistance of cryptocurrency forensic experts, who trace transactions, calculate profits and losses in fiat equivalents, and assess the tax status of crypto-related activities. Disputes can also arise over custodial accountability—if one party had control over the wallets or keys and failed to share the proceeds fairly.
English courts have begun to issue injunctions and proprietary claims over cryptoassets to prevent their dissipation during such proceedings. The ongoing development of jurisprudence indicates that courts are increasingly viewing crypto as not only an investment class but one with detectable, measurable, and recoverable value.
Insolvency Proceedings and the Treatment of Digital Assets
Insolvency scenarios raise another pressing question around cryptocurrency. When an individual or a company files for bankruptcy, their estate is administered for the benefit of creditors, involving the valuation and liquidation of all assets, including cryptocurrency.
Liquidators and insolvency practitioners face a variety of issues in managing crypto holdings. Firstly, locating wallets and obtaining access to private keys is frequently a barrier. Secondly, determining the fair market value and deciding the appropriate time to realise the asset for maximum recovery can be contentious, particularly during market downturns.
Furthermore, the tax implications of selling cryptocurrency during liquidation must also be considered, since these could reduce the amount available for distribution. Courts have thus far emphasised transparency and due diligence, often requiring full asset inventories inclusive of crypto.
In some notable cases, such as the collapse of crypto-related investment firms, administrators have struggled to reconcile the myriad digital wallets held by the business, especially when records were poorly kept or deliberately obscured. This has prompted calls for better regulatory frameworks and auditing standards specific to cryptoassets.
Judicial Attitudes and the Role of Expert Evidence
Courts have, by and large, adopted a pragmatic approach in adapting existing legal structures to address the novel aspects of cryptocurrency. In England and Wales, judges have generally shown a willingness to educate themselves, supported by the increasing use of expert witnesses and legal scholars specialising in digital finance.
Judges often rely heavily on expert evidence to explain how a particular cryptocurrency works, where it is stored, how it can be valued, and what the implications of its transfer are. This contrasts sharply with more traditional financial assets, which courts are generally equipped to handle without specialist input.
As a result, parties engaging in crypto-related litigation are advised to instruct suitably qualified experts from the outset, as failure to present clear, intelligible information about digital assets can undermine a party’s case or lead to unfavourable outcomes.
Regulatory Developments and Their Impact on Settlements
As the legal treatment of cryptocurrency continues to evolve, so too does the regulatory environment. The United Kingdom’s Financial Conduct Authority (FCA) has increasingly taken steps to monitor and regulate aspects of the crypto industry, from anti-money laundering (AML) compliance to consumer protections.
These developments are expected to influence court processes as well, particularly when it comes to ensuring transparency and legitimacy in financial disclosures. Regulatory guidelines can assist legal practitioners and clients in identifying which digital holdings must be declared and valued and how these should be reported during proceedings.
Furthermore, increased regulatory oversight may make it easier for courts to enforce disclosure obligations, trace transactions, and ensure equitable outcomes in settlements involving cryptocurrencies. However, the decentralised and global nature of digital assets continues to pose challenges that may not be fully answered by national regulations alone.
Looking Ahead: Best Practices for Parties and Practitioners
The legal landscape regarding cryptocurrency and financial settlements is maturing, but remains in flux. Parties entering into litigation involving digital assets should be aware of the unique risks and responsibilities involved.
For individuals, maintaining detailed records of all cryptocurrency transactions, regardless of perceived value, is paramount. Ensuring transparency can protect against adverse inferences or claims of non-disclosure. When cryptocurrencies are jointly held or used within a relationship or business, considering prenuptial, cohabitation, or partnership agreements that address digital asset division can prevent disputes later on.
For legal practitioners, staying abreast of technological and regulatory developments is essential. Working closely with forensic experts and valuers skilled in blockchain analysis ensures comprehensive case preparation and more persuasive argumentation before courts.
Perhaps most importantly, both litigants and lawyers must recognise that while crypto may be perceived as a new frontier, courts ultimately seek to apply established principles of fairness, equity, and justice. Whether assessing the impact of a hidden wallet or deciding which party should bear the risk of future market volatility, the judicial aim remains unchanged: to deliver outcomes that are just, balanced, and enforceable.
In conclusion, as digital assets become increasingly woven into the fabric of personal and commercial relationships, their treatment in legal settlements demands not only technical knowledge but also robust ethical and strategic considerations. Courts are rising to this challenge, ensuring that cryptocurrencies, no matter how complex, are not beyond the reach of law.