In recent years, cryptocurrency has raised concerns among some divorced clients. We hear questions like “I believe my spouse has cryptocurrency or other digital assets and we are going through a divorce. What can I expect?”
With the rise in popularity over the past decade of cryptocurrency and other digital assets, including non-fungible tokens (NFTs), more and more divorced couples are now vying for these assets. The difficulty of locating, tracking and valuing cryptocurrency and other digital assets has added another layer of litigation in a divorce. Some divorced spouses believe they may be under-reporting or hiding funds in cryptocurrency wallets as it may be difficult to find or access information about these assets due to the built-in secrecy nature of the assets. assets.
But digital assets are not untraceable. While the process of locating and tracking these assets can be a long, slow, step-by-step process, it is possible to track the money and account for most, if not all, of the digital assets owned by a spouse during of divorce. to treat. with the advice of a competent lawyer in the field and the assistance of a wise expert/analyst.
While most cryptocurrency holders buy and sell on an online exchange, like Coinbase, Binance, or Kraken (think e-commerce but for cryptocurrency), some more private or tech-savvy spouses may hold their crypto -currency in private wallets. A private wallet is a private/personal storage device for private keys (like passwords) used to perform cryptocurrency transactions. Rather than letting an online exchange hold a user’s private keys, a private wallet allows the holder to use those private keys and public addresses, which represent ownership and control of virtual tokens, to access and transact. in cryptocurrency.
To complicate matters, a spouse can have more than one portfolio and different types of portfolios:
- Software: where the private keys are stored on an app on the individual’s phone or computer
- hardware: a physical, tangible storage device that plugs into a computer when the user wishes to transact cryptocurrency
- paper: A piece of paper that lists a private key or contains a barcode.
Gathering evidence from these private wallets, especially when not disclosed by a spouse, can be difficult. In addition to the normal discovery options available to a divorced spouse, a physical search of wallets and/or a forensic scan of electronic devices may be required in order to locate these assets. For a more in-depth discussion of available discovery options, please see Attorney Bownes’ article on Digital Dollars in Divorce.
Once the cryptocurrency is discovered, an analysis will need to be performed to determine if the transactions made by the spouse holding the cryptocurrency are benign, such as payment for goods and services for spousal purposes, such as buying food for family to a local. farmer’s market that accepts cryptocurrency payments, such as my local farmer’s or if the transactions were made to hide, dissipate, or otherwise dispose of an asset to keep from the other spouse.
Spouses can dispose of or hide cryptocurrency through sales on an exchange or by providing cryptocurrency to a merchant. Other ways include making purchases on the dark web, buying gift cards with bitcoin, playing the funds on unregulated gambling websites or through unregulated or peer-to-peer exchanges (i.e. giving cryptocurrency to a friend or family member for cash or to hold during divorce). A spouse can also use tumblers – online companies that launder cryptocurrency for a fee (i.e. you send Bitcoin, they send you back a different type of coin with a slightly lower value after subtracting of their costs).
It is important to thoroughly investigate and analyze the transactions of the holding spouse to ensure that he has not transferred, hidden, dissipated or failed to disclose assets. Once the analysis and discovery process is complete, and the non-custodial spouse is satisfied that he or she has a full understanding of the other spouse’s assets (and that the transactions made during the marriage were not nefarious purposes or made to hide assets from the other spouse), assets must be valued for the purpose of partition in the divorce. If the digital assets can be split, the non-holding spouse must decide if they want to receive a share of the other spouse’s digital assets in kind (i.e. receive actual cryptocurrency to be managed by themselves). same) or whether the digital asset(s) should be valued and then taken into account in other ways when dividing the entire marital estate.
A non-custodial spouse should consider whether they are willing and able to manage digital assets. For example, depending on the type of cryptocurrency coins a spouse has, there may be mining fees, or transaction costs, associated with splitting the coins that need to be determined and split between the parties. If, on the other hand, the digital asset cannot be divided or if the beneficiary spouse does not wish to dispose of the digital asset, the asset will have to be valued and accounted for by way of compensation in the overall distribution of the matrimonial patrimony. domain. The valuation date then becomes critical, as the cryptocurrency and digital asset markets are incredibly volatile. For example, while the value of Bitcoin (BTC) has decreased by approximately 21.49% over the past year, the value of SHIBA INU (SHIB) has increased by over 481,104% over the past year. . Agreeing on an early valuation date may not be beneficial to either spouse if values change significantly during what will likely be a lengthy process of discovery.
Although locating, tracking, and valuing cryptocurrency or other digital assets in the context of a divorce can be overwhelming for a divorcing spouse, retaining a knowledgeable attorney early in the process can help. alleviate some of that stress. With the right lawyer and experts as needed, hidden cryptocurrency and other digital assets can be found and accounted for in a divorce, even if the spouse holding the asset fails to provide information or tries to blatantly hiding assets.