Going through divorce litigation can be very challenging, even for the toughest individual. Homes, kids, and memories are at stake. But while you’re gathering the strength and courage to go through, you also want to ensure equitable and fair separation of marital assets following your decision.
Separating some martial assets is rather straightforward. But when it involves a little-understood but thriving asset class like cryptocurrency, settling to understand a few more intricate details can go a long way in helping you complete a just divorce litigation.
It doesn’t matter whether you’re considering a divorce, are in the middle of it, or are scouring for valuable information to preserve your future assets. This article presents all the necessary information you need about what happens to your (or anyone’s) crypto in a divorce. You’ll also find valuable details on how to navigate the complexities involved if two partners choose to call it quits on their marriage.
Really, what is a cryptocurrency?
Foremost, getting a hang of the digital asset class and staying ahead of the latest crypto stories may solve about half of your current or potential worries, when dealing with crypto in a divorce.
Cryptocurrencies belong to a class of digital or virtual currencies that function independently of centralized banks or government oversights. Popular cryptocurrencies include Bitcoin, Ethereum, Litecoin, Dogecoin, and more.
Perhaps the most notable difference between cryptocurrencies and fiat is the decentralized nature of cryptos. Unlike the regular American Dollar, British Pound, or EURO – which a central authority issues and regulates – cryptos operate on a decentralized network of peer-to-peer computers.
Given such decentralization, cryptos can be the most difficult assets to trace and regulate, highlighting their uniqueness in financial conversations. So, for a deceitful partner, cryptocurrencies can act as the best way to stash away vast funds in some hidden wallet(s).
That’s because, unlike banks and other financial institutions, cryptocurrencies have no records. Therefore, without a “private key,” no one can locate or access the funds. It’s implicitly beyond the other spouse’s reach.
A private key is a secret number used to sign crypto transactions and prove that someone owns a blockchain address, like a password or serial number. It’s often stored in a virtual “wallet,” which, for many crypto owners, implies further security in a special app or software.
Unfortunately, hiding crypto in a divorce litigation is quickly growing to become a mainstream issue. It was worsened by the fact that the value of cryptos tends to substantially increase over time, information that the owner might have while their partner remains in the dark.
It’s incredibly important for separating spouses to reveal the existence and location of all property between them – including cryptos. Hiding such information could land them on the wrong side of the law, especially if the individual did so deliberately. However, with the right knowledge and agreement, anyone can navigate these “techy” waters even in the heat of a divorce.
Marital assets, prenuptial, and dividing crypto in a divorce
Marriage can be beautiful, but divorce can be the stark opposite. Ultimately, it’s easier for everyone if there’s no debating over who gets what while navigating tough feelings.
If you’re unmarried, protecting your assets with a prenuptial agreement can be a helpful way to plan ahead of a potential separation. In most US states, for instance, a prenuptial agreement must be in writing and signed by both spouses.
However, if you’re already married and possibly considering ending the relationship, it’s worth knowing the technicalities behind cryptos like Bitcoin, Ethereum, and even NFTs that you or your spouse might have.
A marital asset
First, is crypto considered a marital asset? Under the law, cryptocurrency is considered a marital asset, which makes it subject to division during divorce proceedings. That means that if either partner purchased or invested in cryptos during the marriage, it would be included in the assets put up for division.
However, if the partner acquired or invested in a cryptocurrency before the marriage, then it becomes absolved from any division process.
Dividing crypto in a divorce
During divorce proceedings, cryptos are treated like any other asset. If the cryptocurrency transaction occurred during the marriage, it qualifies for a division. Otherwise, it is put away from the financial landscape of the divorce litigation.
Most courts opt to split the determined value 50/50, ensuring that either party walks away with half the money, and practically eliminating the possibility of further dragging over assets. However, in some rare cases, the involved parties might choose to negotiate other marital assets in exchange.
If separating parties choose the rarer route, it may be based on the understanding that the spouse wants to keep them and choose to give up other marital assets they deem similar in value to the crypto.
Finding hidden crypto during a divorce?
Suspecting that someone’s soon-to-be ex is hiding their assets is pretty common. If you’re in a similar situation, you might consider taking the financial disclosure stage of your divorce action a little more seriously.
During this phase, you’re the law requires your spouse to provide full and frank disclosure of all their financials, a provision you can use to your advantage. Ask your partner to share their bank statements, tax records, and other requisite financial records.
Additionally, your divorce attorney may also want to request a disposition with your partner that involves asking them direct questions under oath regarding any crypto transactions. Should your partner demonstrate any form of reluctance at this point, then it might be a red flag that there’s more information about their finances to be uncovered.
How to value cryptos during a martial dispute
Assuming there’s common knowledge about cryptocurrencies being involved in divorce litigation, the next move has to be valuing them. However, it’s worth noting that the process isn’t necessarily a walk in the park. Cryptos are typically traded as stock, therefore, their values are hard to pin down to a specific fiat value.
But there’s still a way out, nevertheless. In the US, for instance, crypto holders have to pay capital gains tax on their crypto assets. Here’s where any tax records from previous crypto transactions can prove handy.
Concentrate on reported gains and losses, as these metrics show how much value your partner gained or lost up to the taxation point. For cryptocurrencies that aren’t on a tax record, valuing them close to the final stages of your divorce litigation may be the best way to determine their most accurate value.
Crypto and divorce: 4 takeaways for safeguarding your financial future
Weddings don’t normally include candid divorce expectations. However, divorce is a reality today that many have to face, anyway. However, preparing financially ahead of a marital separation could be the best way to secure your peace and health in the long run. Following are a few handy tips to help you protect your cryptocurrency assets ahead of (or in) a marital separation.
1. Keep detailed records of all crypto transactions
Keeping detailed records of all crypto investments is a vital step to protect your virtual treasures. That includes information about the purchase date, the amount invested, and the investment’s current value.
You also want to keep track of all transfers or trades made with the cryptocurrency, as these records will become necessary should divorce litigations arise. Also, consider using a digital wallet that lets you easily track and record your cryptocurrency transactions in a secure location that prevents unauthorized access. With detailed records, both parties have a clear understanding of how much what is, as they work towards a fair division.
2. Be transparent with your spouse and the court
Transparency is always key during a divorce. It’s vital to disclose all your cryptocurrency investments to your partner and the court, whether or not you think they are aware of them.
Failing to disclose assets can result in legal consequences and damage your credibility. Moreover, being transparent can help to facilitate a smoother divorce process and potentially lead to a more favorable outcome for all parties.
3. Consider a prenuptial or postnuptial agreement
If you’re considering marrying or are already married, and have significant crypto investments, having a prenuptial or postnuptial agreement can go a long way towards protecting your crypto assets.
Both legal agreements can outline how you and your partner will divide assets, including cryptocurrency, should you choose to part ways. A postnuptial or prenuptial agreement can inform both parties about the value of all available cryptocurrencies and how they will be divided.
4. Consider hiring a forensic accountant, financial expert, or specialist divorce and crypto attorney
If you have a significant portfolio of crypto investments and are going through a divorce, hiring a forensic accountant or divorce/crypto attorney can be worth the investment. These professionals can take away the stress from you and help you accurately assess the value of all cryptos between you and your partner and properly account for them during the divorce proceedings.
A specialist divorce/crypto attorney can guide you on how to protect your assets and wade through the potentially dizzy legal waters, especially about crypto. Note that while hiring a professional may come with extra costs, it can be a highly profitable investment in the long run that saves you time, money, and stress.
Conclusion
Dividing crypto in divorce litigation doesn’t have to be a mind-boggling, lengthy, and difficult process. With the right knowledge, family attorney, plus some amount of due diligence, navigating this divorce phase with relative ease can set you up for a healthier and more peaceful life afterward.
Consider consulting with a specialist solicitor who has experience with cryptocurrency and divorce to ensure all properties are properly accounted for and protected. With the right documentation, information, and preparation, anyone can confidently navigate the complexities of divorce and cryptocurrency.