Cryptocurrencies are a new form of currency, rapidly gaining popularity and media attention across the globe. It’s estimated more than 20 million Americans may own cryptocurrency, and how to split holdings has become a growing concern in divorce settlements.
The problem for divorcing couples is that the division and valuation of cryptocurrencies can be just as difficult as dividing up the equity in a home.
Throughout our cryptocurrency series we have answered many questions regarding different types of crypto and where you can find hidden assets. In a world where cryptocurrency is increasingly accepted as legitimate, it’s only natural that Masters Law Group’s experienced attorneys would know how to handle it. Here’s a quick look at how the state handles the issue at hand.
Disclosing Bitcoins And Cryptocurrencies in an Illinois Divorce
It’s important to understand how the state of Illinois divides and separates cryptocurrency assets. Illinois has taken steps to protect individuals who have invested in cryptocurrencies by allowing them to be counted as part of their overall net worth during divorce proceedings.
However, there are some stipulations involved in this process. Any money received from selling cryptocurrency is considered to be liquidated property and thus should not be counted as part of the overall net worth of an individual during a divorce settlement.
This process may trigger a couple of questions. How would you verify Bitcoin holdings? Would you print a screen grab from an online platform where you hold Bitcoin or other cryptocurrencies? Would you entrust your ex-spouse or their attorneys with the password to your accounts? Coin exchange companies such as Coinbase will issue a 1099-K each year if there have been $20,000 or more in exchanges of cryptocurrency.
Typically, the opposing party’s attorney will go through the process of cleaning up the financial affidavit and ask you for these documents to verify the claimed assets. The opposing party’s attorney will issue a “Notice To Produce” asking for copies of statements for your 401k, bank accounts, etc. If you have access to those documents, you must provide them a copy of those documents if they request it. Failure to do so can result in a finding of contempt of court.
The Illinois Department of Revenue requires 1099-K forms to be submitted electronically to Illinois when four or more separate transactions exceed $1,000 or if you are required by the IRS* to electronically file Forms 1099-K.
Essentially any 4 crypto-currency purchases, sales or trades will trigger a 1099-K in Illinois and the cryptocurrency holder will have those 1099-K as part of their standard tax packet. If your spouse will not fully disclose their cryptocurrency holdings, you may have to turn to an expensive third party to discover any additional holdings.
How Do You Divide Crypto in Illinois?
After determining the actual existence and quantity of your spouse’s cryptocurrency, the next step in the analysis is to figure out what portion of the cryptocurrency is marital. In Illinois, all property held by either party is presumed marital property unless it falls under an exception such as being acquired before the marriage, being a gift or an inheritance.
Typically, if both parties agree to the settlement they might have to include a formula for the volatility of the crypto. Once the judge approves of the formula, the price of that cryptocurrency in the martial estate becomes more foreseeable.
Dividing crypto in Illinois is similar to the division of any other assets. Illinois is not a community property state, which means the court will split assets purchased, converted or appraised throughout the marriage in an equitable manner. It’s important to note that when it’s split equitably, it doesn’t always mean equal. Here are a couple factors that determine equitable distribution:
- Age, health, financial circumstance of a spouse
- Financial contributions to marital estate
- Court-ordered obligations related to previous marriages
- Child custody considerations
- Prenuptial and postnuptial agreements
- Tax Concerns
- Marriage Duration
- Alimony provisions
If you are ever unsure about the ownership of your property, you should consult legal counsel immediately in order to avoid any uncertainness. Lastly, if both parties agree to the settlement they might have to include a formula for the volatility of the crypto. Once the judge approves of the formula, the price of that cryptocurrency in the martial estate becomes more foreseeable.
The volatility of the price of these assets makes it very difficult to adequately value at the time of the divorce. Discovery and final negotiation of a divorce can sometimes take months and in that time a cryptocurrency could double or halve in value. A cash out of the cryptocurrency before the finality of the divorce is probably advised to finalize the marital value.
How Masters Law Group Can Help
When it comes to modern-day divorce cases, Masters Law Group has you covered on all things crypto. If you’re facing a divorce and suspect that your spouse is hiding crypto (and don’t know what signs to look out for), you can find that information in our recent blog here. If you have questions about the different types of popularized crypto, you can find that information right here.
Masters Law Group is here to help you through this stressful time. It’s important to consult your attorney as soon as you find any hidden cryptocurrency and discuss everything you know about the assets such as the type of crypto, the date of purchase and its appreciation. Gather any documents and records you may need in order to get your affairs in order.
Our team of attorneys are highly experienced in dealing with Cryptocurrencies in divorce and are here to answer your questions about divorce and digital asset division.