The Growing Issue of Cryptocurrency During a Divorce
Cryptocurrency is a relatively complex asset in digital form. However, like any other asset, it is subject to the rules of marital property and separate property. These currencies only exist in a virtual form that involves the use of cryptography for helping make ownership and transactions secure.
Cryptocurrencies, such as Bitcoin and Ethereum are designed as a medium of exchange that is different from traditional means. Individuals can freely transfer funds without any custodian or intermediary. They can be used for storing value or purchasing goods, services, and other assets. A lot of people don’t understand that cryptocurrency can make divorce matters quite complicated.
Property Division in a Divorce and the Crypto Trend
Cryptocurrency has become a significant investment from an obscure hobby for many people across the United States. As Bitcoins and other crypto assets rise dramatically in terms of market value, they have made many investors wealthy. This is particularly true for the investors that entered the segment in the early days. There are several complexities that are attributable to crypto-assets, especially in terms of dividing assets between spouses during a divorce.
Treating Crypto Assets for Legal Purposes
Divorce law throughout the US doesn’t specifically mention what should happen to crypto assets during a divorce. However, experts and lawyers widely agree to the fact that this is an asset that should be reported during a divorce. Different jurisdictions, including Alabama, have recognized the legal status and classification of cryptos.
The United States doesn’t treat crypto as government-backed currency in the same manner as European countries. It is generally treated as part of a person’s property in the United States. However, there are several exceptions to these generalizations that are case-specific. You should work with an informed and knowledgeable divorce attorney to understand whether cryptocurrency needs to be reported or not during your divorce proceedings.
Valuing Cryptocurrency to Divide Property in a Divorce
It can be challenging to assess the value of crypto assets because of various reasons. For starters, the value of cryptocurrencies varies across exchanges and mediums that they are traded on. Based on this, they are not directly traded in the national currency. Instead, they are traded with other cryptocurrencies. You would need to calculate the ‘Fair Market Value’ (FMV).
This gives rise to another challenge as the FMV of crypto-assets can increase or decrease dramatically during the divorce proceedings. These are a few possible ways of ensuring fair distribution of assets and dealing with this problem:
- The applicable portion should be distributed in the form of cryptocurrencies
- The crypto-assets should be transferred to an intermediary who will be responsible for liquidating the assets and distributing them fairly among both parties
- The settlement amount should be proportionally increased or decreased according to the value of the crypto assets
The Risk of Hidden Crypto Assets in a Divorce
It is common for a misinformation gap to arise when only one partner is involved in dealing with crypto assets. The other spouse may not have any knowledge of their investments. This gap may prove to be a handicap and prevent one spouse from knowing what to look for in terms of uncovering crypto asset holdings during the asset division process of the divorce.
Fortunately, there are a few ways that you can discover cryptocurrency assets. Ethereum and bitcoin are the easiest to discover. Other crypto assets are generally subject to higher levels of anonymity. They are more volatile and less valuable than their better-known counterparts.
An experienced divorce attorney will have a forensic expert on their team. These experts can search for login credentials for exchanges, cryptocurrency tickers, and keys for crypto digital wallets. Crypto purchases can come up on credit card statements, bank statements, and other financial documents.
Seizing Cryptocurrency if the Spouse Fails to Report or is Uncooperative
It is important to recognize that most individuals dealing with divorce and cryptocurrency will not knowingly misreport or hide the crypto assets. This is because of the potential legal consequences, including criminal fraud. There are a few things that would need to be determined before crypto-assets can be seized.
This includes taking a look at the kind of assets held by the spouse. This step would need a digital forensics expert to go through all the statements and data. The court may be able to order asset repossession once it is determined the type of crypto assets held by the individual and their location. You should know that repossession of cryptocurrency will not always prove successful, even when ordered by the court. It depends on whether the spouse is cooperative and where the assets are located.
If one of the parties is not willing or able to pay the other party directly during the divorce, the crypto assets would be transferred to a custodian. This custodian will be responsible for the liquidation and distribution of the assets. This is similar to what happens during receivership and bankruptcy.
Discuss Your Concerns with a Knowledgeable Divorce Attorney
Most people are not aware of how cryptocurrencies work. If you are worried about how your or your spouse’s crypto-assets will affect the property division process and other aspects of the divorce, you should reach out to the informed attorneys at Smith Law Firm. Our team of seasoned and highly trained family law attorneys can answer all your questions about digital asset division in a divorce. Get in touch with us today by calling at 334-702-1744 or simply writing to us online.
