Cryptoassets (e.g. Bitcoins, Cryptocurrencies, NFT Artworks, etc.) have seized global attention. With dramatic fluctuations in value and enigmatic qualities, “crypto” has polarized opinions worldwide. In the family law sphere, crypto is an increasingly common feature, whether arising in the course of discussing pre or post nuptial agreements, or during divorce.
Whilst there has yet to be a published Hong Kong Family Court decision on the topic, there are fundamental principles of law that give guidance as to the court’s likely approach. This article is a summary overview of issues and answers to frequently raised questions that may help demystify the subject.
Parties undergoing divorce have an ongoing duty of full and frank disclosure. The disclosure process includes the exchange of a financial statement known as a “Form E” whereby both parties are required to provide details on their assets held globally (e.g., cash in bank, properties, stocks, insurance policies). Crypto is indisputably an asset that must be disclosed and certainly forms part of the distribution of assets after the breakdown of a marriage. A party must also verify the contents of a Form E with a sworn statement of truth, which, if untruthful (including the failure to disclose one’s assets), would lead to severe consequences from the court.
Following the exchange of Forms E, parties are entitled to request additional and reasonable information in the form of “Questionnaires”. If there are gaps in disclosure (e.g., the failure to provide required supporting documentation such as bank statements), questions can be put to obtain more particulars. Regarding crypto, a party may raise specific questions relevant to this particular asset. For instance, account identification details with third party crypto financiers or digital asset exchanges, account transaction statements, and explanations for bank withdrawals, deposits, and transfers. Such information can assist with verifying a party’s Form E information, assessing if any sums are not properly accounted for, and understanding the value of another party’s crypto holding. A party may also engage a specialist forensic accountant to assist in the analysis. Although virtual assets (by their nature) may be harder to value than more traditional assets, such as stocks and shares, this does not prevent the court from determining a valuation for the purposes of making a ruling on financial matters. If discovery is not forthcoming, is unsatisfactory or insufficient, a party has the option to alert the court, and apply for sanctions against the other party and/or for further specific discovery.
Consequences of non-disclosure
There is a common fear that an ex-spouse may attempt to withhold information, lie, or obscure their financial position. The court is well aware of and experienced in dealing with such behaviour and has adopted robust measures which serve to disincentivize anyone’s attempt to engage in non-disclosure or litigation misconduct. The same will apply to any litigant failing to properly disclose information relating to their crypto. If the court finds that a party has deliberately sought to avoid disclosing assets, adverse inferences will likely be drawn against that party. The court may consider it appropriate to “addback” a certain sum to the matrimonial pool of assets for division. It will also likely consider such behaviour to be a form of litigation misconduct which can result in an unfavourable costs order to penalise the non-disclosing party. The court’s approach will be dependent on all the circumstances of the case, and what the Judge considers is a fair and just outcome. Any belief that one can hide assets of any nature in a divorce, including cryptoassets, is misguided and not to be encouraged.