Tag Archive for: crypto and divorce

The Illinois Divorce Process and Cryptocurrencies

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.

Contact us today for more information, or to schedule a consultation.

Can You Lose Bitcoin in a Divorce?

While some cryptocurrencies are easily found during the discovery phase of divorce proceedings, others, such as bitcoin, can be more challenging to find, particularly when they are private. If you have an impending divorce on your hands, you need to know how to find, value and divide them. Here’s what you should know. 

In the first of our Cryptocurrencies and Divorce series, we discussed how the rise and popularity of cryptocurrency has led to some spouses hiding digital assets during divorce settlements, and tracking down the funds isn’t an easy process.

If you or your spouse own cryptocurrency, you are going to want to make sure it is discussed with your divorce attorney. It may be a marital asset that needs to be valued and divided; but due to cryptocurrency wildly fluctuating, it can sometimes be problematic to value, and therefore split fairly.

Here’s what you need to know about handling bitcoin and other cryptos in divorce.

A Quick Recap of Cryptocurrency 

The use of cryptocurrency varies user to user. Some people prefer to use cryptocurrency for online purchases to ensure secure financial transactions. Others might use it simply to capitalize on discounts or rewards offered for the use of digital currencies.

The most popular form of cryptocurrency is Bitcoin. Some examples of other digital currencies are Litecoin, Ethereum, Ripple, Zcash, Bitcoin Cash, and Cardano. Digital currency is bought, sold, and traded on various platforms. Coinbase is a popular platform used for Bitcoin. Some other digital currency exchange platforms are Kraken, BitStamp, ShapeShift, Gemini, and Bisq.

Cryptocurrencies are validated by a blockchain. This refers to a list of records called blocks that are linked together like a chain. Blockchains are designed to be secure. The foundation of a blockchain is a “decentralized database.” Blockchains can include a piece of information called a hash.

It is very important to know if any parties in a family law matter have cryptocurrency. Cryptocurrency can be a marital asset eligible for division in a divorce. If you know cryptocurrency exists, it will need to be valued. Cryptocurrency has an exchange rate just like standard currency and it can be converted into U.S. dollars. There are programs on the internet that can assist with the conversion of cryptocurrency to dollars. It may be helpful to know which conversion rate program that cryptocurrency owner utilizes.

Looking for Cryptocurrency

Figuring out whether or not cryptocurrency exists is important. Have you discussed cryptocurrency with your spouse? Have you overheard them boating to their friends about their crypto wallet? Will bank account statements or credit card statements show deposits or withdrawals from a digital currency platform? Are there emails or other correspondence that contain information about cryptocurrency?

If any of these are true in your marriage or divorce, you should notify your attorney immediately. Your attorney will need to start collecting information about the cryptocurrency. Obtaining documentation about cryptocurrency can be tricky because often the point of cryptocurrency is for transactions to remain private or secure.

First, it needs to be determined if the cryptocurrency owner has a wallet and whether that wallet is online or is a physical device. The wallet will have an ID and a password for logging which can be requested in discovery. Wallets can be similar to a portable hard drive and be an actual physical item. In other instances, the wallet may just be online and through one of the cryptocurrency exchange platforms. Different steps need to be taken to preserve information from both kinds of wallets.

An owner can usually download a transaction history from his/her wallet or exchange platform. The transaction history is often downloaded as an Excel spreadsheet or other electronic document. The download contains information like a bank statement such as date, time, amount of cryptocurrency, conversion rate, balance, transaction ID, and hash information.

Most transactions will show some sort of confirmation of purchase. Often the confirmation occurs via email and serves as a receipt. The confirmation may include the conversion rate, dollar amount, and a date and timestamp. In some instances, the confirmation may identify where the cryptocurrency user deposited the funds after sale or where they withdrew the funds from to make a purchase. This can help you in the long run to identify other assets.

Can You Lose Bitcoin in a Divorce?

Bitcoin is treated the same as any other asset in a divorce. If the bitcoin transaction was before the marriage, was given as a gift or through an inheritance, it is not marital property and usually cannot be divided. Therefore, if the transaction was during the marriage, it is marital property and can be divided.

When bitcoin is considered marital property, the easiest way to divide them is to split the determined value 50/50. Since most bitcoin can be cashed out in full, splitting the value 50/50 means each spouse would simply get half.

Another way to divide bitcoin is by negotiating other marital property in exchange. If the spouse with the bitcoin wants to keep them, they can give up other marital property with the same determined value to the other spouse.

Final Thoughts

These days, bitcoin and other cryptocurrencies are all the rage. As such, the issue of bitcoin is bound to pop up in divorce cases.

It is important to make sure that bitcoin is properly discovered and valued in family law matters. If you know or suspect that cryptocurrency will be a part of your divorce, talk to your family law attorney immediately and put together a game plan for dealing with it. This may include a plan for how to explain how cryptocurrency works with other parties or professionals in your case.

If you are concerned about how your or your spouse’s cryptocurrency assets could affect your divorce or the asset division process, Masters Law Group can help. Our team of highly trained and experienced attorneys are here to answer your questions about divorce and digital asset division.

Contact us today for more information, or to schedule a consultation.

 

How is Cryptocurrency Divided in Divorce?

Cryptocurrency is an asset like any other kind of asset, and as a result, it may be considered separate property or marital property. What many people do not understand is exactly how complicated this can become. 

Cryptocurrency is a type of code or software that dictates how a unit of currency is produced and regulated.  Essentially, the creator of the cryptocurrency makes the units using an algorithm that relies on cryptography to secure the currency. The most common cryptocurrency, and the first of its kind, is Bitcoin, but there are thousands of other types that can be purchased or earned.

Despite Bitcoin and Crypto prices being extremely volatile, (the recent Crypto crash being a prime example), cryptocurrency is gaining in popularity and becoming a more and more common asset seen in divorce cases.

Crypto and Divorce Trend

Cryptocurrency has gone from an obscure hobby to a significant investment for many people across the country. As crypto assets like bitcoin rose dramatically in price, many investors became wealthy, especially those who entered the crypto market in the early days. However, cryptocurrency can also add new complications to a divorce, particularly when it comes to dividing assets between divorcing spouses.

Here’s a look at some commonly asked questions about cryptocurrency assets in a divorce.

Q: What is Cryptocurrency and is it Considered Marital Property?

A: Bitcoin is a cryptocurrency that allows secure transactions on the internet without having to go through a bank. Bitcoins can be exchanged or traded for other currency, products, or services and have increased in use since their creation in 2008. With this increase comes new challenges in a divorce when it comes to dividing up assets.

Cryptocurrency is considered an asset and as a result, it may be considered separate property or marital property. In some cases, growth in the value of cryptocurrency during the marriage may be considered a marital asset, even if the original purchase took place before the marriage. 

This is especially true when both spouses were involved in using cryptocurrency, investing in crypto assets, or planning to rely on crypto to fund future financial ventures. If you’re a crypto investor considering divorce, you should always consult with your lawyer about how you can expect your investments to be affected by the separation.

Q: Can You Lose Bitcoin in a Divorce?

A: Bitcoins are treated the same as any other asset in a divorce. If the bitcoin transaction was before the marriage, was given as a gift or through an inheritance, it is not marital property and cannot be divided. Therefore, if the transaction was during the marriage, it is marital property and can be divided.

When bitcoins are considered marital property, the easiest way to divide them is to split the determined value 50/50. Since most bitcoins can be cashed out in full, splitting the value 50/50 means each spouse would simply get half.

Another way to divide bitcoins is by negotiating other marital property in exchange. This means, if the spouse with the bitcoins wants to keep them, they can give up other marital property with the same determined value to the other spouse.

Q: Can Cryptocurrency Be Used to Hide Assets During Divorce?

A: A misinformation gap can easily arise especially when only one partner is involved in the crypto market and the other spouse has little knowledge on the aspects of crypto investments. This gap can lead to one partner not knowing what to look for when it comes to uncovering crypto holdings in the asset division process. 

The growing awareness of cryptocurrency technology has led to more divorce attorneys thinking about how to deal with crypto as a way of hiding assets. In some cases, a spouse may suspect the other party has undisclosed crypto holdings, while in other cases, they may notice that the other spouse suddenly seems to have a source of funds that is not tied to their existing employment or investments.

There are several ways that cryptocurrency assets may be discovered. The best-known and easiest to uncover are bitcoin and ethereum. Other cryptocurrencies may offer higher levels of anonymity. Those assets are much less valuable and more volatile than the better-known digital currencies. A forensic expert typically brought in by the parties, may search for cryptocurrency tickers, login credentials for exchanges, or keys for certain types of digital wallets.

Bank statements, credit card statements, and other financial documents may indicate transactions for crypto purchases from various exchanges.

Final Thoughts

During a marriage, it’s important for both partners to have an understanding of their marital income, and investments. With greater knowledge about finances shared between spouses, it can be far more difficult for one person to hide assets during a divorce. 

If you are concerned about how your or your spouse’s cryptocurrency assets could affect your divorce or the asset division process, Masters Law Group can help. Our team of highly trained and experienced family law attorneys are here to answer your questions about divorce and digital asset division.

Contact us today for more information, or to schedule a consultation.