What Happens To Bitcoin In A Divorce?

July 1, 2021

As cryptocurrency becomes a more popular form of currency, it is important to understand how bitcoin, an unregulated form of cryptocurrency, might be treated in a divorce. Our experienced attorneys at Johnson Law Group can advise you on situations related to bitcoin and your divorce. Contact us today by phone at (720) 463-4333 or text-to-chat (720) 730-4558.

Understanding Cryptocurrency

While the term cryptocurrency has gained in popularity relatively quickly over a short period, many people do not understand how it works. Even more so, cryptocurrency can be used to hide assets if someone is going through a divorce process.  If someone is getting a divorce but does not understand how cryptocurrency works, they may be more inclined to give away the value associated with these assets since they are digital and not tangible.  If cryptocurrency or bitcoin is divided in a divorce proceeding, then it is important to ensure that the split is equitable. Our experienced Colorado divorce attorneys at Johnson Law Group can discuss what to look for if you think your spouse has a cryptocurrency investment.

What Is Cryptocurrency and What Is Bitcoin?

Cryptocurrency is defined by the IRS as a type of “virtual currency.” Virtual currencies represent value but do not have “legal tender” status in the United States. Cryptocurrency uses cryptography (codes) to secure transactions. The transactions are then kept track of digitally in a database called a “blockchain.” Bitcoin is a type of convertible virtual currency, meaning that it can be a substitute for real currency. Bitcoin transactions are recorded in blocks of encrypted data. These blocks then become part of a larger “blockchain” comprised of all transactions. While blockchains are public, individual owners of certain transactions are not. You can only find specific transactions through a public key which is a group of numbers on the blockchain. Bitcoin can be traded, purchased by, or exchanged into other real or virtual currencies, including the United States dollar.

How Can Assets Be Hidden in Bitcoin in a Divorce?

According to a 2018 survey by the National Endowment for Financial Education, among couples who have combined finances, two in five (41%) have committed financial deception. Over a third (37%) hid a bank account, purchase, or bill from a partner or spouse, and almost one in five (18%) lied about finances or debt to a partner or spouse. With this in mind, you can see how bitcoin would be an enticing way to hide assets and money from a spouse or partner.

Because cryptocurrency and bitcoin are not currently heavily regulated by financial institutions you cannot simply request information about the owner of the cryptocurrency. To access bitcoin you will need the private key of the individual who owns it. Without this, it is impossible to access the digital currency or trace it back to a specific individual. Private keys can be moved frequently and often left in untraceable locations.

Cryptocurrencies and bitcoin are discovered in a divorce through discovery. Below are a few ways you (through your attorney) may request information related to bitcoin in a divorce:

  • Depositions
  • Financial releases
  • Subpoenas
  • Requests for production
  • Inventory requests

Your attorney should use a variety of tactics to determine if cryptocurrencies exist. Some examples of what your attorney may do to discover if bitcoin exists include:

  • Asking specific questions about bitcoin in inventory forms and depositions.
  • Requesting any documents and purchase records related to bitcoin.
  • Reviewing bank records and look for any signs of cryptocurrency purchases or transactions.
  • Requesting tax records to review any reported disclosures or gain or loss reports for cryptocurrency.
  • Searching e-mail or other correspondence for bitcoin references.

Bitcoin is incredibly easy to hide behind for several reasons:

  • Bitcoin is not regulated by any one agency. Therefore, there is no group you can request specific information on a person or a transaction.
  • It can be difficult to not only track transactions but also owners.
  • There is a lack of general knowledge of how bitcoin works. Therefore, even a judge who has to rule on bitcoin may not be entirely familiar with it.
  • Bitcoin is incredibly volatile and liquid. Owners can quickly change wallets (i.e., accounts), and remove or add funds.

What To Do If You Have Bitcoin in a Divorce

If you or your spouse have bitcoin or another cryptocurrency it may be a marital asset that needs to be valued and potentially divided between you and your spouse. It is always best to be honest about your digital currency holdings in a divorce proceeding, especially if you are the only one who knows the true value of the bitcoin. If you are going through a divorce and believe that your spouse is holding bitcoin our attorneys can guide you on the various ways you may be able to verify their digital currency and any transactions related to bitcoin holdings.

What Happens to Bitcoin in a Divorce?

Bitcoin should be treated like any other asset in a divorce. Bitcoin can be valued and divided among the parties. It is up to you and your spouse as to how you want to divide bitcoin assets in a divorce. One way is to split it fifty-fifty. This sometimes may be the easiest way to split the assets and perhaps the most effective as cryptocurrency and bitcoin are incredibly volatile. The date on which you value the Bitcoin is incredibly important as it will determine what the bitcoin is worth – even if fluctuates after the fact.

Another way to divide bitcoin is for one person to keep the currency while the other gets the equivalent value in cash or another asset. A very easy way to handle bitcoin in a divorce is to immediately sell it and split the proceeds equally between you and your spouse.

Contact Our Experienced Colorado Family Law Attorneys Today

If you are going through a divorce and need to discuss bitcoin with an experienced attorney, contact the Johnson Law Group today. We can discuss your unique situation and how best to handle bitcoin in a divorce based on your specific needs. Call our experienced Colorado family law attorneys today by phone at (720) 463-4333 or Text-to-Chat (720) 730-4558.

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