If you or your spouse are seeking a dissolution of marriage and one or both of you own cryptocurrency assets, you may have many questions about how it is handled as an asset in a divorce. Is it considered marital property? How is the value determined? What are the legal issues and precedence for the division of crypto during a divorce? How is it paid out? Due to the relative newness of this digital currency, all of these are important questions that we will address here.
Is Cryptocurrency Considered Marital Property?
Because cryptocurrency is a relatively new digital asset, the legal precedence for the property division of crypto during the dissolution of marriage is limited. Based on the current case law in existence, it is generally treated as marital property or separate property, depending upon the circumstances of acquisition.
As with other financial assets, cryptocurrency is considered marital property if it was acquired during the marriage. As marital property, it is subject to division between the parties. For cryptocurrency that was acquired prior to the marriage or outside of the marriage (like a gift or inheritance) by one spouse, it is treated as separate property and will be retained by the individual cryptocurrency owner.
In certain situations, an increase in the value of the cryptocurrency assets during the marriage may be classified as marital property, even if it was initially acquired outside of the marriage. This is most commonly the case when both parties participate in trading, investing, or planning for future financial reliance on the crypto assets.
How is the Value of Cryptocurrency Determined During a Divorce?
The cryptocurrency exchange can be volatile and unpredictable. The price can change rapidly throughout a short period of time, unlike stocks that have a set price for a specific day. To mitigate this issue, the divorce lawyers of each spouse must work to negotiate an agreement about when to finalize the asset value. In many cases, it may be helpful to agree to reevaluate the value of the currency at a current exchange rate before the division is final. This can help avoid inequitable outcomes due to market fluctuation over the course of the divorce process.
Learn More: Questions to Ask a Divorce Lawyer
Why is Dividing Cryptocurrency During a Divorce Difficult?
Stocks and real estate are treated as physical entities and are governed by many federal regulations, cryptocurrencies are not subject to these same rulings. Because of this, difficulties can arise during the asset division process.
One of the most difficult aspects is determining the value, as mentioned above. After securing a set time to establish value, the spouses must also prepare for unforeseen or unsettled tax obligations. If errors or omissions were made on prior tax returns, they will come to the surface during the divorce process.
Another aspect that can lead to issues when dividing cryptocurrency is the fact that it is stored on a digital wallet. A digital wallet can be viewed as similar to a bank account, investment fund, or retirement account. However, if both spouses have access to the wallet, it can be easier to spend, sell, transfer, or hide without the knowledge of the other. The fact that crypto can be used anonymously can increase the likelihood of this event.
Other than one spouse maliciously draining a digital wallet, anonymity also makes it hard to track transactions that occurred during the marriage. The inability to determine if the asset was spent, traded, or transferred can lead to further complications and disputes.
How Do You Receive Cryptocurrency When the Divorce is Finalized?
Just like any other financial account, the separating parties may choose to liquidate the account and then divide the cash. They may also opt to transfer shares out of one wallet into separate wallets. Or, like other marital property, one spouse can choose to forgo their portion of the property in exchange for a larger stake in another marital asset.
Related: How to File For Divorce in Illinois
What Can You Do if Your Spouse is Hiding Cryptocurrency?
Although each spouse is required to provide an honest account of their marital assets in the discovery, one may try to hide wealth in the crypto market. If you have concerns about hidden cryptocurrency, you should bring it up with your divorce lawyer.
Due to the increase in the popularity of cryptocurrency, an experienced attorney will know to ask. If there is sufficient evidence to assume this may be the case, your divorce attorney can request a court order to look into computer records or subpoena major digital currency exchange platforms or wallets.
If a court order is obtained, a forensic expert will look into the financial transactions in search of proof of cryptocurrency ownership. This can include looking into bank statements, credit card statements, or other financial documents for proof of purchase. They may search for confirmation of account setups via email or even peruse documents like tax records or loan applications where proof of income from crypto investments may be indicated.
Major coins like Bitcoin or Ethereum are easier to track. While altcoins or secure transactions on foreign exchanges may be impossible to uncover. Fortunately, smaller coins are generally less valuable and more volatile.
For any questions about cryptocurrencies and divorce, it is best to speak to your family law attorney. At Tommalieh Law, we are prepared to represent you in your divorce and answer all of your crypto questions. Contact our Chicago family law attorneys today for your free case review.