How Has Crypto Become A Source of Contention In Divorces?

Oct 3, 2022 | Clauses, Finances, Florida Prenuptial Agreements, Prenuptial Agreements, Protecting Assets, Protecting Assets, Relationships

Cryptocurrency is the new wild west, and everyone’s saddling up for an opportunity to capitalize on investments. The first cryptocurrency was developed in 1990 by David Chaum; known as “DigiCash,” but as it was still the early days, it didn’t take off as rapidly as he planned. 

The most publicized crypto to date is Bitcoin. As of July 22nd, 2022, over 46 million Americans own a share of this valuable asset. Today, millions of crypto investors use Bitcoin, Ethereum, and other viable cryptocurrencies to privatize their assets. While some currencies are easily uncoverable during divorce proceedings, others are rather difficult to find. If you don’t have a prenup dictating crypto investments, you’ll run into walls while dividing the funds. This is one of many prenup pros; saving valuable lawyer bandwidth and time during divorce proceedings. 

Why are divorcees fighting over crypto?

When it comes to divorce, things can get hot and heated very quickly. If an individual is hiding valuable assets, it’ll get even more dicey. Crypto has the possibility of being one of the most expensive divisions during the property division stage. Partners tend to under-report their holdings; but vicious counter parties will still seek out every last penny of their “half.”

One divorce firm, called CipherBlade, found that a husband was hiding over $10 million dollars of crypto assets during a divorce proceeding.3 While it’s understandable that a partner wouldn’t want to reveal privately held funds to their estranged partner, the whole financial picture needs to be clear. It’s safe to say that it’s not always worth the hours and extra fees to investigate small crypto holdings. Hiring a forensic expert to track an electronic trail; plus paying lump sums of lawyer fees is only a financial payoff for large holdings. Divorce lawyers do not recommend proceeding with a crypto tracking investigation for funds below 5k. 

What about the taxes paid on past crypto investments?

It’s really easy to forget about the tax side of crypto holdings, especially if they were purchased years prior. An individual who invested in Bitcoin in 2015 is subject to long-term capital gain taxes once they sell the coin share. This can be solved with a post-divorce tax bill.

Why is cryptocurrency so hard to track?

Ever since its development and boom in the late 2000s, crypto has become increasingly more secure. It’s not all about privacy though, some users choose crypto over card for the rewards and discounts offered by paying with digital currency. In most countries, you can pay for valuable goods and services with crypto, instead of your countries’ financial institutions. It keeps your purchases secure, and without a paper trail. Most cryptocurrency assets are stored in a decentralized database, known as the Blockchain, praised for being impenetrable by outside forces. Your data, assets, and purchases are kept completely confidential on your personal wallet, accessible to you exclusively by private key.

What are the easiest/hardest cryptocurrencies to track?

Experts claim the most popular coins are easiest to track, as they’re likely to be mentioned in loan applications, conversations, or have an electronic trail. The hardest cryptos to find are monero, dash, zcash, PIVX, verge, etc since they are virtually anonymous.1

Is crypto considered marital property?

Without a prenup, your cryptocurrency investments are not completely safe. During property division stages, the state you reside decides if crypto is determined as marital or separate property. “If one or both parties to the divorce obtained Bitcoin or another cryptocurrency during the marriage, it’s likely to be considered community property.”2

There are a few exceptions to this rule. Crypto assets are registered as separate property if:

  • Both individuals entered the marriage with their own cryptocurrency.
  • The cryptocurrency was received as a gift or inherited.

 

Before you sign marriage documents, protect yourself with a prenup dictating your crypto assets and listing them as separate property. HelloPrenup can help!

How is cryptocurrency divided in a divorce?

Without a prenup– it’s a mess.

With a prenup– it’s simple and smooth; not to mention, you save loads of cash on lawyer fees. Then, you can invest these surplus funds in more crypto. 

Let’s say you don’t have a prenup, and you need to split your valuable crypto assets. Crypto is extremely difficult to evaluate in legal proceedings because the value is volatile. You can cash out half a Bitcoin on Monday for $10,500, only for it to increase in value 20% on Thursday. The day the judge signs your paperwork is the day you put a final price tag on the monetary value of the crypto. For this exact reason, divorce lawyers recommend splitting the crypto instead of paying out the cash parallel.

Can cryptocurrency be used to hide assets in a divorce?

When one partner is invested in the crypto space, and the other is not, it’s very easy to ignore private crypto holdings. If an ex-spouse doesn’t know their partner has crypto assets, sometimes it’s not brought into proceedings at all.

This can cause a huge holdup in the divorce process, as forensic experts need to be called in to analyze electronic footprints and uncover the hidden assets. Legally, your lawyer will need to call for a subpoena to have access to your ex’s phone or computer. Next, these experts come in to look for:

  • Private wallet keys
  • Cryptocurrency tokens or coins
  • Ledger holdings
  • Off-shore accounts linked to wallets
  • Cryptocurrency exchange login credentials
  • Bank or card statements
  • Any other financial documentation listing crypto transactions

Crypto Wallets

If your ex-partner holds a virtual crypto wallet, they can download a transaction history of the exchanges made on the platform. The transaction history will reveal the date, time, amount, rate of conversion, balances, and other mandatory information. Just as well, these timestamps can show if the asset was purchased prior to the marriage, making it evaluated at separate property and not up for property division.

“I’m already married, but I want to protect my crypto assets now.”

It’s not too late to meet with a lawyer and write up a postnuptial agreement to protect your crypto and NFT holdings. The sooner the better.

How can a prenup protect you from crypto contention?

Prenups don’t just protect current assets, they keep you secure from substantial financial divisions in the future. 

Cryptocurrency and NFTs are intangible assets that must be included in your prenup. Here are three tips for preparing your prenup:

  • Specify yourself as the sole owner of your cryptocurrency assets.
  • Hire a professional, like HelloPrenup to make the process smoother. 
  • Speak with your partner about your asset allocation before you sign your wedding license.

When is a good time to start my prenup and protect my assets?

The best time is now. The worst time is after signing marriage documents. Prenups are becoming more and more widely used as digital assets grow in popularity. It’s better to have the property division chat before you walk down the aisle, so each party knows what’s what. With such volatile odds at stake, protect yourself and your partner with a prenup. HelloPrenup has certified expertise in more than 25 states, so you won’t have to do any legal digging. We got you and your partner covered.

References

1https://www.cnbc.com/2021/06/01/divorcing-spouses-are-using-cryptocurrency-to-hide-money-how-experts-find-it.html

2https://www.maplesfamilylaw.com/divorce/bitcoin-divorce-courts-divide-cryptocurrency/

3https://www.nytimes.com/2022/02/13/technology/divorce-bitcoin-crypto.html

All content provided on this blog is for informational purposes only. HelloPrenup, Inc. (“HelloPrenup”) makes no representations as to the accuracy or completeness of any information on this site. HelloPrenup will not be liable for any errors or omissions in this information nor for the availability of this information. These terms and conditions of use are subject to change at any time and without notice. HelloPrenup provides a platform for contract related self-help. The information provided by HelloPrenup along with the content on our website related to legal matters (“Information”) is provided for your private use and does not constitute legal advice. We do not review any information you provide us for legal accuracy or sufficiency, draw legal conclusions, provide opinions about your selection of forms, or apply the law to the facts of your situation. If you need legal advice for a specific problem, you should consult with a licensed attorney. Neither HelloPrenup nor any information provided by Hello Prenup is a substitute for legal advice from a qualified attorney licensed to practice in an appropriate jurisdiction.

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