Since cryptocurrencies are non-tangible forms of wealth, it might be tempting to think that they would not count as marital assets. In fact, their increasing use has led to some spouses attempting to conceal their wealth before a divorce can take place. For our Birmingham divorce lawyer, discovering concealed evidence of cryptocurrency investments for clients can be laborious and difficult. When they are discovered, the courts usually do not like the fact they were left out or not stated when asked. Such hidden assets should always be told to the opposing party during the discovery process.
If one party chooses to conceal their cryptocurrency investments during divorce proceedings the process of discovery will sometimes discover them. Discovery should include requests for documentation, requests for the currency’s private key, and requests for access to the spouse’s digital wallet. Digital wallets can be similar to a portable hard drive, or they may exist online and attached to the cryptocurrency exchange. Downloading the information from the wallet will give information about transaction dates and times, the currency’s rate of exchange, and balance, among other things. If the discovery process does not produce evidence and suspicions remain, tax returns and bank/credit card statements can demonstrate proof of hidden financial activity.
The most effective way to trace evidence in these cases is to have a forensic expert examine the spouse’s electronic devices. It is important to work with your local divorce attorney in Montgomery or anywhere else in Alabama on this to avoid breaking any wiretapping laws.
Additionally, if there are any high stakes issues with factors like spousal support, then it might be worth conducting a lifestyle analysis of the spouse’s finances. This involves a financial expert who can review the known sources of income against expenses. If there are any discrepancies, then further investigations may be warranted.
Other Issues with Determining Cryptocurrency Value as Marital Assets
One of the difficulties of factoring in cryptocurrencies as marital assets is their market volatility. Digital currencies can fluctuate wildly at any time, and that includes divorce proceedings, so divorcing spouses and their attorneys may want to consider adding a volatility formula to their contract.
Another difficulty is considering how cryptocurrency ownership affects tax filing. It is important to consider the purchase date of the cryptocurrency, and whether or not the divestment will be subject to long-term capital gain taxes.
Additionally, if the investor spouse did not report their crypto investments as income to the IRS, the IRS could have question for the couple if they filed jointly. One down the line solution for this issue, should it arise, will be for the non-investing spouse to gain an affidavit from their ex-spouse saying that they had no unreported income during their marriage. This should hopefully be a rare situation.
Finally, there is the issue of transferring cryptocurrency assets. Unlike traditional investments, where the companies involved will have more experience with dividing assets, some cryptocurrency exchanges might not have the experience or the customer service options to assist in the process. It will require both spouses having a private key, a digital wallet, and ideally a third-party manager to handle the transfer for them.
Despite the newness and complexity of cryptocurrency in divorce law, it still counts as a marital asset and must be considered in the proceedings. Openness, honesty, and some education on the topic, can make the process easier for all involved.
Attorney Steven A. Harris regularly blogs in the areas of family law, bankruptcy, and real estate closings on this website. He is always available in any of the firm’s offices or by phone anytime for a consultation. Mr. Harris tries to provide informative information to the public in easily digestible formats. Hopefully you enjoyed this article and feel free to supply any feedback. We appreciate our readers and love to hear from you!