Handling Cryptocurrencies in Hong Kong Divorce Proceedings

Jocelyn Tsao, a well-known family lawyer in the Hong Kong region, Jocelyn has been associated with Withers for over 11 years now and possesses over 15 years of experience in advising and litigating on divorce and other family related matters. On the other hand, Anisha has been practicing as a family lawyer with Withers for almost 10 years and is an accredited and trained general commercial and family mediator with HKMAAL and a trained collaborative practitioner.

In a recent conversation with Prisila (Correspondent, Asia Business Outlook), Jocelyn and Anisha shared their valuable insights on matters relating to crypto assets in divorce cases in Hong Kong. Below are a few key extracts from the exclusive interview –

What legal framework or regulations govern the division of cryptocurrencies in divorce proceedings in Hong Kong?

In every divorce proceeding in Hong Kong, there would be compulsory financial disclosure on both sides. For this, there is a prescribed form named Form-E where both the parties must list everything that they have under their names. Since cryptocurrency is a new type of asset, although people have to disclose it, there is currently no specific section for cryptocurrency. Thus, we usually advice our clients to list their crypto assets under the investments column along with stocks and shares that they own or under "other assets". Also, the value of cryptocurrencies will be taken as per its value on the date of filing their respective Form-E. We take the help of forensic accountants or cryptocurrency experts only when there is a dispute from the opposite party regarding the valuation of the crypto assets.

Are there any specific factors that influence the division of cryptocurrency assets between spouses in Hong Kong divorce cases?

There are no specific factors that influence the division of cryptocurrencies, as they are common for division of all kinds of assets - be it physical or digital. This is because when the court deals with the division of assets, it does not look at the assets in isolation, but rather pools all the assets together and then decides the division ratio that each parties receive in the divorce proceeding. To put it in simple terms, the court takes the overall value of assets from both parties into consideration. Some of the key factors that are taken into consideration in every divorce proceeding in Hong Kong are how long they have been married together, their respective age, their current employment status & earning capacities, number of children and amongst other factors.

How does the volatility of cryptocurrencies impact their division in divorce cases?                                              

The values of cryptocurrencies are so volatile that if the court's verdict goes in such a way that the husband will hold all the cryptocurrencies and the wife will hold other remaining assets, there are chances of having an argument from the husband's end demanding a favorable discount in asset value since he is holding a highly volatile asset that has no specific/guaranteed value and involves very high risks. Similarly, if the market of the crypto asset that is in consideration is doing welland something worthwhile to invest in at that particular time, then the wife's side might put-up an argument in the similar way as well.

"The values of cryptocurrencies are so volatile that if the court's verdict goes in such a way that the husband will hold all the cryptocurrencies and the wife will hold other remaining assets"

Throw some light on the evolution of cryptocurrency regulations in Hong Kong in recent years, especially in divorce proceedings.

For the first time in Hong Kong, the family court recently handed down a judgment which sets out a specific list of what disclosure a person must submit in terms of their investments in cryptocurrencies. This includes information such as the account number, user ID, transaction report of last 12 months, and color image of the crypto wallet and even give a detailed explanation on how you arrived at the specified valuation of your crypto assets. This way, the court has been trying to introduce more guidelines and regulatory frameworks for practitioners as well as both the parties involved in the divorce proceeding in terms of tackling the disclosure and valuation of crypto assets.