Identifying Crypto in Divorce
It’s National Cryptocurrency Month, a time to reflect on a fairly new asset concept that has grown increasingly popular. In this blog, we’ll cover what you need to know about cryptocurrency and how Masters Law Group can help you identify crypto in a divorce.
Cryptocurrency interest and awareness has exploded over the past five years. This increase was initially fueled by younger, techminded individuals, but recently large banks like Morgan Stanley and Goldman Sachs have invested heavily in crypto assets. This cultural phenomenon has spread, and recent numbers show that upwards of 53 million Americans are invested in crypto.
Cryptocurrency is volatile, wide ranging (think beyond Bitcoin) and can be more difficult to identify compared to other assets. Its volatility means its value can swing wildly – even in as little as hours. Cryptocurrencies are also numerous and multiplying with over 20,000 different currencies as of this year.
What does this mean for you if you’re currently navigating a divorce? Read on to learn the steps you should take to ensure financial equality is met.
The Cryptocurrency Basics
By this point you’ve probably heard the word “cryptocurrency” but few could define it succinctly. Let’s break the word in two to simplify things. First, cryptography – “the practice and study of techniques for secure communication.” Second, currency – “A system of money in general use.” From this we can see that the goal of cryptocurrencies is to “secure” the transaction records, creation of additional currency units and their transfer.
What makes cryptocurrencies unique is the technology behind them – blockchain. Blockchain is what allows for the foundational security of these digital assets. What is blockchain? To keep things simple it’s a distributed ledger across multiple nodes, computers and people that creates a network and stores information. This decentralized database ensures that no one person or group can have leverage over the currency.
Identifying Cryptocurrency as a Financial Asset
The main issue when dividing cryptocurrency is the volatility we mentioned. For example, in January of 2021 Bitcoin surged over $40,000 before falling to $32,000. These valuation swings can make determining value difficult compared to more traditional assets.
Beyond this, the first step is to determine if your spouse has cryptocurrency holdings. Depending on the relationship, you may already know if these digital assets exist. If you’re unsure there are steps to take.
Consider past conversations. Have they mentioned cryptocurrency? If so, that establishes a baseline interest that may lead you to believe they have assets in place. If you feel that they do, you would move into a discovery phase.
First off, share this information with your legal counsel. Your attorney and their team can use this information to begin investigating. Some of the first steps they may take would be to determine if there is a physical “wallet” or a digital one. This wallet may be in the form of a hard drive that holds the cryptocurrency or in the form of an online exchange like Coinbase.
Either way, this information will be password protected. Once entry is secured, a paper trail will show itself. This information will contain transactions, the cryptocurrency holdings, conversion rate and other pertinent information.
Once all of this information is secured, the division of the assets can be discussed.
Division and Reconciliation
There are four basic paths that can be chosen once valuation has been determined. Let’s briefly cover these.
- Simple Division: As the name suggests, this would simply be a division of the cryptocurrency assets.
- Custodial Holding: If holding cryptocurrency is not valued, a custodian can be secured. This representative would handle the cryptocurrency transaction – into the US dollar for example – and then hold the amount until the divorce is finalized.
- Cryptocurrency Owner Liquidation: In this situation, the owner of the cryptocurrency (your spouse) would convert your share into US dollars. The value of the currency would be determined by the day of sale value.
- Liquidation with No Claim Upon Remaining Cryptocurrency: This is similar to the option above, the difference being that your spouse would retain full ownership but would liquidate the cryptocurrency as it stands. You would not be owed any of the assets.
By working with your legal counsel, you can determine the best course of action.
Cryptocurrency is fairly new, meaning it’s often misunderstood. Its popularity means it will continue to be relevant in divorce cases into the foreseeable future.
If you’re currently navigating a divorce, and believe that you are owed a portion of cryptocurrency assets, reach out to Masters Law Group LLC today. Our skilled team has experience with digital assets and our breadth of knowledge means we can answer your questions and assist you in gaining access to what you’re owed.