Cryptocurrency issues arise in a divorce when the court tries to value the marital assets of the divorcing parties. Since cryptocurrency has never been officially classified as a specific type of asset, some spouses may fail to disclose it to the other party. Some may even use it as a way to hide assets that are part of the marital estate to avoid equitable distribution. If one spouse suspects the other party has cryptocurrency, he or she should always be on the lookout for large cash transfers and withdrawals to and from a cryptocurrency exchange.
What Is Cryptocurrency
Cryptocurrency is a decentralized digital currency that uses blockchain technology. Unlike paper currencies like the U.S. Dollar, there is no government body in charge of managing and maintaining the cryptocurrency’s value. Instead, this responsibility is shared among cryptocurrency users through the Internet.
What Makes Cryptocurrency So Challenging in a Divorce?
Without the “private key,” tracing the units on the blockchain to the individual owner of the cryptocurrency is impossible. For this reason, dealing with cryptocurrency during divorce can be so challenging. The private key is the passcode that enables the individual cryptocurrency owner to spend and/or invest the digits on the blockchain. Knowing the private key is, therefore, a requirement when determining whether a person holds cryptocurrency.
Due to the lack of financial institutions that keep cryptocurrency, getting information regarding the holder of the digital currency is impossible unless the private keys are held in an exchange. While difficult, the non-holding spouse can use a court order to obtain information from an exchange.
Finding Proof of Cryptocurrency Holdings
The non-holding party can obtain proof of cryptocurrency holdings by going through the bank and financial statements of the holding party. Cryptocurrency transactions are usually made using devices like computers and smartphones. A forensic expert can obtain information on cryptocurrency transactions from personal devices. A family law attorney can advise the non-holding party on the best way to have data pulled from a personal device without violating wiretapping laws.
Dividing Cryptocurrency Holdings
After obtaining enough information about the cryptocurrency holdings, the next step is to devise a way to divide those assets. Due to the volatile nature of many cryptocurrencies, equally dividing the holdings is the easiest solution. Before deciding to abandon or keep the holdings, the divorcing party should gather information about the kind of cryptocurrency that is held to estimate the value of those holdings.