Two recent decisions of the Singapore High Court pertaining to digital assets have been eye-catching. In CLM v CLN,  SGHC 46, the High Court decided that cryptocurrency holdings were ‘property’ and could be subject to proprietary injunctions. In Janesh s/o Rajkumar v Unknown Person (‘CHEFPIERRE’),  SGHC 264, the High Court came to a similar decision, albeit in the context of a Non-Fungible Token (“NFT”).
These decisions have sparked very substantial interest in digital assets in the legal industry, and may represent the latest frontier of potential new law-making. As a result, we have often been asked – how are digital assets treated in Singapore family law?
In Hong Kong, we are still eagerly awaiting the first published Family Court Judgment relating to digital assets but as we are seeing more and more families holding digital assets, as in Singapore, we are also often asked how they are treated in family law.
In Singapore, only ‘matrimonial assets’ are subject to division post-divorce. The term ‘matrimonial asset’ is defined in section 112(10) of the Women’s Charter, as:
“… any other asset of any nature acquired during the marriage by one party or both parties to the marriage, …”
This definition is, of course, subject to exceptions that we will not discuss in this article. It is notable, however, that this definition is very broad. It encompasses any asset of any nature acquired during the marriage.
Notably, the definition of ‘matrimonial asset’ does not use the word ‘property’. ‘Matrimonial assets’ thus, arguably, do not need to satisfy the four requirements which were discussed in CLM v CLN which have to be met before a thing can be considered ‘property’.
The Family Court in Singapore is thus used to dividing, as matrimonial assets, things which we would not commonly regard as ‘assets’. A 2002 decision of our Court of Appeal confirmed that stock options that have not yet been vested can be divided as matrimonial assets. Choses in action – i.e., intangible legal rights – have also been divided as matrimonial assets as long as they have value.
It would thus come as no surprise that digital assets are widely accepted in Singapore family law to be matrimonial assets that can be divided. In UTL v UTM,  SGHCF 10, the Family Division of the High Court held that a Bitcoin holding was a matrimonial asset that was subject to division. We note, further, that neither party appeared to dispute that a Bitcoin holding was in principle liable to division – the dispute was over whether that particular Bitcoin investment still existed or had already been liquidated.
Thus whilst there are, at present, no reported decisions discussing whether digital assets fit the definition of ‘matrimonial asset’, it appears to be accepted by the Family Justice Court that digital assets with value can indeed be liable to division post-divorce. The recent decisions in CLM v CLN and Janesh s/o Rajkumar v Unknown Person (‘CHEFPIERRE’) would only strengthen this view.
In Hong Kong, parties have a duty to disclose their worldwide assets whether they are liquid or illiquid so that it can be determined whether they are matrimonial assets. Digital assets will definitely be assets that need to be disclosed by a party so that they can be taken into consideration by the court when the assets are distributed.
Accordingly, and consistently with CLM v CLN and Janesh s/o Rajkumar v Unknown Person (‘CHEFPIERRE’), proprietary injunctions (e.g. freezing injunctions) over digital assets can also be granted in divorce cases.
The Family Court is, however, averse to granting proprietary injunctions as a matter of course in divorce proceedings. A proprietary injunction will not be granted except as a last resort, in a situation where there is a clear risk of dissipation, and where the injunction is necessary to protect the claimant’s interests in the division of assets. This is also bearing in mind that the risk of dissipation alone will not be sufficient to warrant an injunction, since it is established that the Court can notionally return dissipated assets to the pool for division to vindicate an aggrieved party’s interest in the pool of assets.
Likewise, in Hong Kong, the Family Court, will not grant an injunction lightly, but if there is evidence of dissipation, it may be possible to seek an injunction to freeze the assets of the other party and, if necessary, seeking to cover for example cryptocurrency exchanges so that the investment can not be traded.
Although it is almost trite in Singapore family law that digital assets can be liable to division, they nevertheless pose challenges. These challenges are, namely, (1) disclosure, and (2) valuation. Thankfully, these are not challenges that are novel and unique to digital assets, and there are solutions.
The same challenges of course exist in Hong Kong family law but as in Singapore, there are solutions.
Disclosure of digital assets
Cryptocurrency is widely used to transact on online black markets because it allows the parties to the transaction to remain anonymous. Cryptocurrency holdings are held through electronic ‘crypto wallets’ which are often untraceable to the owner of the wallets without engaging a specialist expert and expending very substantial time, effort, and money.
Thankfully, in the divorce setting, the problem is often the opposite one – i.e., not ascertaining the owner of a crypto wallet, but instead ascertaining whether a person owns a crypto wallet or not. This is a less problematic issue because digital asset holdings – these days – are often purchased using traditional currency. The days where substantial valuable cryptocurrency could be acquired by ‘mining’ are – to the authors’ best (but still layman) knowledge – behind us. Given that digital asset holdings are usually acquired using traditional currency, the purchase of digital assets can usually be traced from bank account statements. This trace, if detected, can form the basis for a train of inquiry that can itself be the basis of discovery or interrogatories in the Court process.
We would recommend – if there is a prospect that substantial digital asset holdings have not been disclosed – that the aggrieved party engages specialist forensic accountants to assist with the tracing.
In Hong Kong, during divorce proceedings, each party must complete a financial statement known as a Form E to provide full disclosure of their means, both capital and income. There is a duty to provide full and frank disclosure of assets and financial resources, including holdings of any and all digital assets. If holding cryptocurrency, addresses such as Bitcoin addresses and exchange statements should be provided to evidence holdings.
If this disclosure has not produced what is believed to be the true extent of the digital holdings, the right questions need to be asked relating to the online accounts with exchanges, location of digital wallets etc. There is the opportunity to do this via legal correspondence, questionnaires and specific discovery applications. Failure to provide full and frank disclosure will place parties in contempt of court risking a fine and even potential imprisonment.
Digital assets are notorious for being highly volatile in valuation. 1 Bitcoin was worth USD7,887 on 11 March 2020. It had lost one-third of its value just 4 days later, on 15 March 2020, coming in at USD 5,165. Its value more than tripled in 9 months, and 1 Bitcoin was worth USD 18,245 on 11 December 2020. One month later on 10 January 2021, it had doubled in value again to USD 40,256. This level of volatility is seen across almost all classes of digital assets – not just Bitcoin. Not many traditional assets see this level of volatility maintained consistently over long stretches of time.
The default rules in proceedings for division of assets in Singapore are that the pool of assets is (1) identified at the time of the Interim Judgment, but (2) valued at the date of the hearing of the ancillary matters. Given that fully contested ancillary matters proceedings often take a year (sometimes more) to complete, a pool of digital assets could be valued very differently at the start and at the end of the proceedings. The specific date of the hearing could also cause a windfall to one party or the other, given that digital assets can fluctuate in value very substantially over very short periods of time.
This can be mitigated in two ways.
Firstly, the digital asset holdings can be divided in specie, instead of its value being divided. For instance, if a pool containing 2 Bitcoin is divided equally between the former spouses, each party will obtain 1 Bitcoin, instead of one party retaining 2 Bitcoin and the other party being paid the monetary value of 1 Bitcoin. This, however, only works with fungible digital assets (e.g. cryptocurrency) and may not work with NFTs.
Secondly, the digital asset can be subject to an ‘if and as when’ division order. This means that the value of the digital asset is divided only when it is sold. Such an order will align the parties’ interests in maximising the proceeds of sale of the digital asset. Safeguards will, however, have to be put in place to ensure that the ‘if and as when’ division order is not frustrated by the owner of the digital asset retaining the digital asset indefinitely – as may be the case if a valuable NFT is retained purely for clout.
If the digital asset is divided between the parties, the risk or benefit of changes in value are shared. However, with its very specific market and specialised trading platforms not everyone will want to take on a significant digital asset/investment. It may be better for one party to retain the digital asset offsetting it against another. What though if one takes real estate worth US$10million and the other takes digital assets wort US$10million and the value of the digital asset crashes the following week. Or alternatively, they become a billionaire the following month. In Hong Kong, it is established law that where price fluctuations can be anticipated, as part of the natural function of a type of asset, the court will not be prepared to entertain the re-opening of a case that is “closed” even if the price fluctuations are extreme. Legal advice should be sought urgently if the hearing has concluded but the order has not been made yet or the order has not been sealed as then there may be scope to revisit the terms of the order.
Digital assets have for some time frustrated lawyers. The position has been clarified somewhat in the 2 recent decisions in CLM v CLN and Janesh s/o Rajkumar v Unknown Person (‘CHEFPIERRE’).
Thankfully, in the arena of family law, the relatively broad definition of ‘matrimonial asset’ and the development of the law of division of choses in action have resulted in the widely-accepted mentality that digital assets are indeed liable to division. The challenges posed by digital assets are also not unique to digital assets.
It is, perhaps, for these reasons that we have yet to see a highly-publicised decision on the treatment of digital assets in divorce. In our view, there is less controversy over whether digital assets can constitute assets for division in the context of divorce proceedings. Parties may instead require greater professional assistance for the tracing of such digital assets.
There is the common fear that an ex-spouse may attempt to withhold information or lie to conceal their assets. The Hong Kong Family Court is well aware of and experienced in dealing with such behaviour and has adopted robust measures to disincentivize anyone’s attempt to engage in non-disclosure of any asset which includes digital assets. Any belief that one can hide assets of any nature in divorce including digital assets is misguided. This approach is similar in Singapore.
For further information, please contact:
Ivan Cheong, Partner, Withersworldwide