Is it possible that virtual “cryptocurrency” could be a new way to hide assets in a divorce? Some are concerned that “Bitcoins” and other types of cryptocurrency may be the next new means of cheating the system and avoiding full disclosure in a divorce or child custody case.
To provide some background, Bitcoin is a digital currency that was introduced in 2009. Bitcoin has skyrocketed in value in recent years and as of January 2018, one Bitcoin is worth approximately $9,996 U.S. dollars. Bitcoins are stored entirely online, and encryption techniques are used to regulate the currency anonymously and without any central, physical bank involvement. Users may store their coins in virtual wallets set up through third-party websites, and all transactions using Bitcoins are conducted in an online marketplace. Individual users in these marketplaces are essentially untraceable. Because of Bitcoin’s virtual nature, they are the perfect way to hide money from creditors or potentially ex-spouses.
During any divorce action, both spouses are required to file a notarized affidavit known as a “Sworn Financial Statement,” which lists all of their assets and debts, as well as their income and expenses. If one spouse possesses Bitcoins or other cryptocurrency, that counts as an asset, the same must be disclosed, and could also potentially be a source of income. The difficult part is that a spouse may not know that his or her partner owns Bitcoin, and even if they do, it can be nearly impossible to track the money down. However, there should usually be at least an initial paper trail – i.e., the original transaction where the spouse transferred actual money to another in exchange for Bitcoins. If you can find this transaction, it may be proof of hidden assets.
Bitcoins, like any other asset, are subject to equitable distribution in divorce. As such, they must be valued and divided in an equitable fashion. Since Bitcoin fluctuates in price, the valuation date is key. This date, for instance, can be the date that one spouse files for divorce, the date the spouses sign a stipulated agreement, or the date the Bitcoins are distributed.
There are various ways in which Bitcoin or other cryptocurrency may be distributed in a divorce. For instance, one person may keep the currency, while the other gets the equivalent value in cash or some other asset to offset the amount. Or you may decide to equally divide the currency. Probably the safest option given the volatile nature of cryptocurrency is to immediately sell it and split the proceeds.
Please contact the Domestic Team at Feldmann Nagel Margulis for all of your family law needs.