Divorce is often a challenging and emotionally charged time, requiring the division of shared assets. For some couples, this includes digital assets, such as cryptocurrency. As the world continues to embrace digital currency, couples are finding that these assets are adding another layer of complexity to an already difficult process. In this article, we will explore what happens to cryptocurrency during a divorce and the steps couples can take to navigate this unique situation.
Understanding Cryptocurrency
To begin with, cryptocurrency refers to digital or virtual currency that uses cryptography for security, making it extremely difficult to counterfeit. Some of the most commonly known cryptocurrencies include Bitcoin, Ethereum, and Litecoin. Unlike traditional money, cryptocurrency operates independently of a central bank. It is managed through blockchain technology, essentially a decentralized ledger that records all transactions across numerous computers.
In the context of divorce, cryptocurrency can be particularly challenging to deal with due to its nature. Unlike traditional assets, cryptocurrencies are decentralized and don’t need to go through a bank. This means they can be easily hidden, making the division of assets much more complex. Additionally, the volatile nature of cryptocurrency makes it challenging to assign a fixed value to these assets.
Identifying Cryptocurrency Assets in Divorce
The first step in dealing with cryptocurrency during a divorce is to identify the assets. This involves recognizing the types of cryptocurrency owned and their associated values. It may require the assistance of a forensic accountant or a digital forensics expert skilled in tracing digital assets. Keep in mind that some individuals may go to great lengths to hide their cryptocurrency or other digital assets, especially during a divorce.
Here are some steps to take first:
- Start by reviewing financial statements and looking for any cryptocurrency exchanges
- Check for any large purchases of technology that may be used for mining cryptocurrencies
- Look for any purchases or expenditures that are unusually large and do not have a clear explanation
Once cryptocurrency assets have been identified, they must be valued. Valuing cryptocurrency can be significantly more complex than valuing traditional assets due to its high volatility. The value of a cryptocurrency can fluctuate wildly from day to day, and even from minute to minute. It is crucial to agree on a specific date and time for valuation to ensure fairness.
After the identification and valuation processes, the division of cryptocurrency assets can commence. This process is often complex, compounded by the fact that cryptocurrency cannot be physically divided. Instead, it must be split digitally, which can be a technically challenging process. The division should be equitable, taking into account factors such as the length of the marriage, the contribution of each party to the marriage, and each party's future needs. In some cases, one party may be awarded the cryptocurrency assets, with the other party receiving more of the traditional assets.
The division can also come in the form of selling the cryptocurrency and dividing the proceeds. However, selling cryptocurrency may incur capital gains tax, which must be taken into account during the division process. In conclusion, dealing with cryptocurrency in a divorce is a complex process, and it is recommended to seek expert advice.
Impact of Cryptocurrency Volatility on Asset Division
Cryptocurrency's volatile nature heavily influences asset division in divorce proceedings. Fluctuating values, often extreme, can create a contentious environment when determining the equitable division of these digital assets. One party may feel disadvantaged if the value plummets after division, or conversely, if it skyrockets, the other party may feel short-changed. This volatility can also lead to disagreements over the valuation date, as different dates can significantly impact the perceived value of the asset.
To mitigate these challenges, some couples opt for a more flexible approach to division. One strategy is to include a clause in the divorce settlement that allows for future adjustments based on the cryptocurrency's value. This means that if the value of the cryptocurrency sees a significant increase or decrease after the division, the settlement can be adjusted to reflect this change. However, this approach requires a high level of trust and cooperation between the parties, which may not always be present in divorce situations.
How to Protect Your Cryptocurrency Assets in Divorce
Protecting your cryptocurrency assets during a divorce requires careful planning and transparency. First, it's crucial to maintain detailed records of all cryptocurrency transactions. This includes keeping track of when and how much cryptocurrency was purchased, the value at the time of purchase, and any fluctuations in value. In addition, it may be beneficial to keep a record of why the cryptocurrency was purchased (i.e., for investment purposes, as a form of payment, etc.), as this information can influence its classification during the asset division process. It's also important to keep these records safe and secure yet readily accessible if needed.
It's equally important to be open and honest about your digital assets. Hiding assets, including cryptocurrency, can lead to severe legal consequences, including fines and potentially even jail time. If you're suspected of hiding assets, the court may award your spouse a larger share of the remaining assets as a punitive measure. In addition, your credibility will be damaged, which can influence the court’s decisions on other matters, such as child custody. Therefore, honesty and transparency are the best policies for dealing with cryptocurrency in a divorce.
Call Palmer Rodak & Associates for Seasoned Legal Advice
Navigating the complexities of divorce can be challenging, and the addition of cryptocurrency assets only adds to this difficulty. It's crucial to seek expert legal advice from a family lawyer with experience in dealing with digital assets. At Palmer Rodak & Associates, our team has extensive knowledge and experience handling divorces involving complex financial situations, including cryptocurrencies.
Contact us online or call us at (760) 573-2223 to schedule a consultation and ensure that your cryptocurrency assets are protected during your divorce.
