Divorce is considered the second-most stressful life event a human can experience. The crumbling of a relationship you have put years or decades of your life into, including your financial assets, can be devastating. And now that some of those assets have gone digital for an increasing number of people, an already complicated process stands to get a whole lot murkier.
Cryptocurrency, or “crypto,” is a digital currency similar to casino chips or gaming tokens. It is a form of payment that can be used to purchase goods or services online. The tokens are not physical – rather, you use actual money to purchase them, then use them to buy something online or trade/sell to other cryptocurrency users for profit. Every transaction is done online and tracked via a highly secure ledger called a blockchain.
You’ve probably heard of Dogecoin, a crypto that has made big news lately for its wildly fluctuating value. There are more than 10,000 unique publicly-traded cryptos, with more being added every day. Bitcoin alone, as the most popular, was worth $735 billion as of May 2021.
Challenges of Cryptocurrency in Divorce
The skyrocketing popularity of cryptocurrency for investors means that it is becoming a factor in divorce settlements. Many spouses are attempting to hide their money inside crypto to keep it from being divided between themselves and their future ex-partners.
More than 20 million Americans own some form of crypto. Their risky investment – as crypto is highly unpredictable and not subject to federal regulations – has paid off big-time for many who got in on the ground floor of the trend when it emerged about ten years ago. Divorcees are learning to conceal the cash to keep it off the table during negotiations. Tracking it down can be incredibly challenging for divorce attorneys – especially with its heavy level of encryption and lack of regulation.
One of the biggest obstacles is simply a lack of understanding about what crypto is and how it factors into the traditional financial portfolios of divorcing spouses. Most accountants and divorce attorneys don’t understand how it works, and a crypto-savvy spouse who does can entirely erase any evidence of their blockchain. A spouse in that situation would need to hire a financial expert who works with cryptocurrency, which can be much more costly than a typical accountant.
Another challenge for your legal team is the sheer volatility of cryptocurrency – it can plunge or double in value several times over the course of the divorce process.
If you do suspect your spouse has hidden crypto and can afford the special forensics required to find it, your expert can scour online accounts, encrypted documents, and other electronically stored information for evidence such as passwords, bank statements or tax returns. If the crypto you’re looking for is lesser-known or foreign exchanged, you’re adding even more layers of complexity. Many divorce lawyers say that you should weigh the value of the cryptocurrency against the high cost of the forensics specialist to see if it’s even worth investigating.
Couples should also keep taxes in mind as they proceed. Suppose the spouse with crypto income didn’t bother to report it, which may be common given digital exchanges only recently started sending tax forms. In that case, both spouses could be on the hook if the IRS decides to revisit their returns years after the fact.
The bottom line? If you’re dealing with digital currency in your divorce, do everything you can to plan ahead. Thoroughly look over the marital assets and information you can access, and be prepared with questions for attorneys on both sides. If there is money missing, you’ll probably find some evidence of that, so you want it ready for the discovery process. Do what you can to make the financial aspects of your divorce easier so you have more time to deal with the mental and emotional fallout.