A cryptocurrency is a digital form of currency that employs cryptography for security and has no central authority. Cryptocurrency is based on blockchain technology. It is different from government-issued currency and is a decentralized network system. The most common and best-known form of cryptocurrency is Bitcoin. However, there are thousands of other different types of cryptocurrencies. Cryptocurrency has brought new challenges to family law disputes. Cryptocurrency intersects with family law disputes, especially for the division of assets between spouses. The family courts in Ontario have a few precedents to guide in resolving such disputes, especially regarding disclosure issues.
CHALLENGES OF CRYPTOCURRENCY IN FAMILY LAW DISPUTES
Cryptocurrency prompts several challenges in family law disputes. Some of the possible key challenges are discussed below:
- Disclosure: The parties in a family law dispute require to make full and frank disclosure about their income, assets, and liabilities. Cryptocurrency is decentralized and anonymous in nature. So, it becomes challenging to trace the existence of cryptocurrency in the name of a spouse. For that reason, the services of a forensic accountant may be required for proper disclosure of such assets.
- Income v. property: Undoubtedly, cryptocurrencies are assets that may generate income. The Canada Revenue Agency (“CRA”) treats cryptocurrencies as commodities. So, the income or loss from crypto is considered business income or loss or capital gain or loss. Consequently, the income/loss from crypto should be considered in the spouse’s income for child/spousal support.
- Imputing income: If the spouse holding cryptocurrencies is not utilizing them fully, the other spouse may consider seeking that the income of the spouse should be imputed because the spouse is not utilizing the assets reasonably to generate income.
- Valuation: The value of cryptocurrency may fluctuate over a period, which makes it complex to ascertain the value of such assets for division of assets/equalization. So, the expert valuator may be required to determine the fair value of the spouse’s cryptocurrencies.
- Double-dipping: Since cryptocurrency is an income-generating asset, there may be a legal challenge that a non-holding spouse may equalize the value of such assets and then also seek spousal support to consider the income of such assets for support purposes. It may be considered double-dipping like any other investment property, pension, stocks, shares, etc.
- Depletion of assets: There may be cases where one spouse invests in a risky crypto and loses the investment. The other spouse may consider holding the spouse responsible for losses due to risky investments and depletion of assets due to his/her negligence and reckless behaviour.
- Jurisdiction issues: Cryptocurrencies operate at a global level. So, it may be a challenge to determine the jurisdiction and enforceability of the court orders.
- Tax implications: For family law disputes, it is imperative to consider any tax obligations at the time of sale or transfer of assets. Cryptocurrency transactions may have tax implications which include capital gain tax. So, it may impact the calculation process of equalization of net family properties of the spouses.
Given the complex nature of cryptocurrencies and their impact on family law disputes, it is crucial to consult with an experienced and knowledgeable family lawyer who understands the nuances of this evolving area. If you have any family law disputes, please contact IQBAL LAW. We provide tailored advice based on your unique circumstances and navigate these challenges effectively.