I Think My Spouse Has Cryptocurrency – Will That Get Divided During a Divorce?

In most divorce cases, all parties recognize that sharing marital assets and obligations is a crucial aspect of the case. Many individuals are unaware of how difficult this situation might become. Cryptocurrency, perhaps more than any other asset class, demonstrates these difficulties.

Cryptocurrency is growing in popularity, and it’s becoming a more common asset in divorce proceedings. The issue is that, with the exception of the investor, most parties and attorneys have limited knowledge about cryptocurrencies, including how to track, value, and split it. When going through the divorce process, a skilled investor can use bitcoin to hide assets and value with relative ease. As a result, having a working grasp of what to look for when divorcing a spouse who may have a bitcoin investment is critical.

What is Cryptocurrency?

A cryptocurrency is a digital or virtual currency that is protected by encryption, making counterfeiting and double-spending practically impossible. Many cryptocurrencies are built on blockchain technology, which is a distributed ledger enforced by a distributed network of computers. Cryptocurrencies are distinguished by the fact that they are not issued by any central authority, making them potentially impervious to government intervention or manipulation.

Cryptocurrencies have a number of advantages, including cheaper and faster money transfers and decentralized systems that do not have a single point of failure. The price volatility of cryptocurrencies, as well as the significant energy consumption of mining activities and their application in criminal activities, are all negatives of using cryptocurrencies.

How is Cryptocurrency Divided During a Divorce?  

The existence of cryptocurrencies, whether acquired or mined, causes issues for divorcees. For starters, it is possible that neither spouse is aware of it. Even if the currency is found, valuing it is difficult because prices change by the minute. Unlike stocks, the prices of commodities can fluctuate at any time of the year. The “markets” are open 24 hours a day, 7 days a week.

Cryptocurrency obtained by one or both divorced spouses during the marriage will very definitely be considered common property. Louisiana law requires that community property be split equally between spouses.

If one or both spouses have their own cryptocurrency, it will almost probably be considered separate property. If it was inherited or given as a gift, it will almost certainly be considered separate property. Separate property is not normally split in the same way that common property is, and thus is not subject to the community property laws of Louisiana. 

As with anything, there are many factors that go into the property division of cryptocurrencies. The most important deciding factors are who acquired it, how, and when. An important note to remember to use is to be honest with your attorney and on all forms. 

Common Problems of Cryptocurrency in Divorce Cases

The data on the blockchain cannot be attributed to a specific individual or owner of the currency without the “private key,” which is why cryptocurrencies can be so problematic in a divorce. The private key is the password that enables the individual owner of a cryptocurrency unit to spend or trade that unit on the blockchain. It is hard to obtain cryptocurrencies or trace it back to an individual if the private key is unknown or lost. As a result, the private key must be known when determining whether or not someone holds cryptocurrency.

Furthermore, unless the holder decides to purchase or keep their currency using an exchange, there is no bank that holds cryptocurrency and no financial institutions where records may be sought to obtain information on the holder of the currency. It is feasible to subpoena an exchange for information, however it is challenging. A spouse, on the other hand, who is driven to hide cryptocurrency can quickly transfer private keys from exchanges to an untraceable wallet.

However, on the upside (for the non-holding spouse) most bitcoin users have many wallets, which makes it easier to identify private keys. Furthermore, once the private keys are known, it is simple to follow all transactions involving that public key because the blockchain records every detail of every transaction, at all times. The bad news is that it is exceedingly difficult to discover and trace the coin, and thus the value of any cryptocurrency holding, unless the private key is located.

Avoiding Complications

Consider addressing cryptocurrency in your marriage settlement agreement or in an accompanying letter ruling request to avoid divorce conflict over these problems. Any of the following provisions can and should be included to avoid complications:

• Despite post-separation variations in cryptocurrency price, cryptocurrency investments can be linked into other marital assets based on their original cost basis.
• Ownership issues over cryptocurrencies should be settled in civil court depending on the market value at the time of separation.
• Should one spouse’s cryptocurrency investment drop due to market fluctuations after separation, spousal support responsibilities will continue.
• Transferring cryptocurrencies to a third party does not result in the loss of ownership as long as the receiving party is unaware of any illicit action involving the monies.
• Unless they are sold or exchanged for marital property, cryptocurrency is recognized as separate property rather than marital property.
• Valuations are done on the day of final separation, and any increase in bitcoin value after that date is considered non-marital property, and the spouse who originally possessed it keeps it.

Anything that can be said to clarify the ownership of the timeline of cryptocurrency should be included on marriage settlement agreements. 

Cryptocurrency in Today’s Divorces

As bitcoin, dogecoin, and other cryptocurrencies gain public acceptance and value, they are increasingly becoming a hurdle in divorce settlements. Whether one or both spouses have invested significant or minor sums of money in bitcoin, the couple’s divorce may provide additional challenges.

Industry groups estimate that more than 20 million Americans possess cryptocurrencies, and the digital currency market value reached $2 trillion for the first time in April of 2021.

Establishing the value of cryptocurrency is one of the most difficult components when dividing it during a divorce. During the divorce process, digital currency worth $300,000 may drop to $200,000 or climb to $500,000. Couples might prepare for this sway by including a volatility formula in their divorce agreement.

According to a recent CNBC article, couples may even try to hide assets using cryptocurrency. The article goes on to note that the reason couples are getting away with hiding money in cryptocurrency is because it is difficult to track the investments. The older the cryptocurrency, the harder it is to track–bitcoin and ethereum, newer forms, tend to be easier to track and find. 

There are ways to track cryptocurrency if you think your spouse is hiding it, however, many attorneys may not know how to use certain tracking techniques and they can be quite expensive. While attorneys can subpoena documents tracking cryptocurrency from the U.S.-based exchanges, getting records from overseas corporations may be difficult.

Contact Betsy A. Fischer, LLC Today

If you are going through a divorce and dealing with cryptocurrency, you need to contact an experienced Louisiana family law attorney immediately. At Betsy A. Fischer, LLC, our divorce lawyers are here to help you through this difficult process. 

If you are facing divorce, contact our office in Metairie at 504-384-7520 to arrange a confidential consultation with attorney Betsy Fischer.