The Impact of Cryptocurrency on Divorce Settlements
Divorce is a challenging process often complicated by the division of assets. In recent years, a new type of financial asset, cryptocurrency, has become popular.
With an estimated 93 million people in the US owning cryptocurrency, it is important to understand the effect these assets can have on divorce proceedings.
Discovering, valuing, and dividing crypto holdings is no simple matter, especially when your spouse may be concealing their assets. In this post, we will discuss how cryptocurrency can impact divorce settlements and what both parties need to consider.
What Is Cryptocurrency?
Cryptocurrency, often referred to as crypto, is a type of virtual or digital currency. It uses cryptography for security, making it difficult to counterfeit.
Cryptocurrency operates on decentralized networks using blockchain technology. This currency works independently of central banks and is rather popular due to its potential for high returns.
Popular types of cryptocurrencies include:
- Bitcoin
- Ethereum
- Litecoin
- Dogecoin
- Chainlink
Cryptocurrencies Can Be a Hidden Asset
One of the main steps in dividing assets during a divorce is identifying and disclosing all assets. All marital assets are subject to division, including cryptocurrency.
Unfortunately, it can be more challenging to track and prove ownership of crypto holdings than traditional assets like bank accounts and stocks. This means that a spouse could attempt to hide financial assets during divorce proceedings.
Consider some of the reasons why it can be difficult to identify cryptocurrency investments in a divorce case:
- Anonymous transactions: Cryptocurrencies operate on decentralized networks. This provides a level of anonymity that traditional banks do not. Crypto transactions can be done with minimal personal information. This makes it easier for spouses to hide these types of assets.
- Digital wallets: Crypto holdings are stored in digital wallets. These wallets do not always need to be linked to a name or address and can be secured with private keys. Without access to a wallet’s private key, it can be difficult to prove ownership of these assets.
- Lack of regulation: Unlike traditional banking systems, cryptocurrencies are not heavily regulated. This lack of legal regulation makes it more difficult to identify hidden assets during divorce proceedings.
How a Family Law Attorney Can Help You Identify and Divide Cryptocurrency Assets
One of the main challenges in dividing cryptocurrency holdings in a divorce is identifying their existence. Crypto assets can be stored in various ways, including crypto wallets and online exchanges.
The following are some of the ways in which a divorce attorney can help you identify all your spouse’s financial assets – including crypto holdings.
Discovery process
During the discovery phase of divorce proceedings, it is important to ask the right questions. An attorney can do this – and use legal tools and processes to uncover hidden assets.
This may include:
- Subpoenas to crypto exchanges to obtain transaction records
- Court orders to mandate the disclosure of crypto wallets and keys
- Depositions that place the spouse under oath to disclose all financial holdings
- Court sanctions or adjustments to the division of marital property if a spouse is found to be hiding assets
A lawyer will also examine tax returns and other financial documents for signs of cryptocurrency exchanges.
Valuing cryptocurrency
Another issue with divorce settlements and cryptocurrency is determining value. Crypto is known for its price volatility, which can fluctuate dramatically from day to day. This makes the fair division of property in a divorce challenging.
Family law attorneys can:
- Set a date of valuation: Your lawyer can help you and your spouse decide on a specific date or a range of dates for valuing the cryptocurrency. This may be the date of separation, the date you filed for divorce, or another date you and your ex agree on.
- Consult financial experts: Divorce attorneys may consult financial experts who can provide a fair market value for the crypto assets on a specified date.
- Calculate tax implications: A family law attorney can help you calculate taxes on cryptocurrency transactions. When cryptocurrency holdings are sold, you may be required to pay capital gains tax to the Internal Revenue Service.
Dividing crypto assets
Once the digital currencies are identified and valued, the next step is the division of assets. How cryptocurrency may be divided will depend on factors such as the specifics of the divorce agreement and the laws where you live.
A divorce attorney can help asset division by:
- Negotiating fair settlements: Your lawyer can help you and your spouse negotiate a fair and equitable division of assets including crypto holdings. This may involve one party keeping the cryptocurrency and the other party getting the equivalent value in other assets.
- Creating legal agreements: Divorce attorneys will draft clear and detailed agreements that specify how the crypto will be divided or transferred. These documents can include information such as the crypto wallet address, login credentials, and other necessary information.
- Ensuring division orders are enforced: Your lawyer will work with the courts to make sure that any orders related to the division of assets are adhered to by your ex-spouse.
Protecting Digital Assets in Prenuptial and Postnuptial Agreements
A prenuptial agreement is a contract signed by a couple before they marry. This contract specifies the ownership of their assets in the event of a divorce. A postnuptial agreement is a similar document but made after the couple is already married.
In prenuptial and postnuptial agreements, couples can say how they wish to handle digital assets if they get divorced.
The following are ways cryptocurrency assets can be included in prenuptial or postnuptial agreements:
- Ownership: Clearly define which cryptocurrencies each party owns. This can prevent disputes about whether these assets are separate or marital property.
- Value: Address how fluctuations in the value of cryptocurrency assets will be handled. The crypto market is volatile. Planning ahead can help manage expectations and prevent future conflicts.
- Full disclosure: The document requires full and frank disclosure of all assets, including cryptocurrency. Failure to do so can make the agreement invalid.
- Security and access: Detail the security protocols for crypto wallets. Make sure both spouses agree on who has access. The agreement should also outline how these assets will be protected.
- Inheritance: Specify how cryptocurrency assets will be handled in terms of inheritance or transferred to children or family members. This can be important to long-term financial planning and estate management.
A divorce lawyer can make sure that the terms are fair and reasonable for both parties. Your lawyer may suggest revisiting and updating the agreement periodically because of the constant changes in the crypto market.
Our Attorneys Can Help You Navigate Your Divorce With Cryptocurrency Assets
Often, one of the most stressful parts of divorce cases is settling the financial details. Dealing with cryptocurrency holdings can make it even more stressful, especially if one spouse is attempting to hide assets.
The legal team at Brown Family Law understands how cryptocurrency holdings can impact a divorce settlement. Our attorneys are ready to assist, providing strong legal guidance in both traditional and crypto asset divisions. We can ensure your rights are upheld and your assets fairly divided.
Are you considering a divorce? Are there complex assets involved, such as cryptocurrency? If so, contact our law firm today for assistance. Call us at 801-685-9999 or complete the contact form to schedule a no-obligation consultation and case evaluation.
