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Crypto Divorce Lawyer

September 5, 2022

Dividing assets is a standard part of any Illinois divorce case. At Masters Law Group, our skilled cryptocurrency divorce attorneys track down these digital assets and negotiate an appropriate and fair division.

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.

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

Valuation presents the primary difficulty when two people need to divide digital currency. Cryptocurrency assets are notorious for sharp shifts in value over short periods of time.

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.

Cryptocurrency Division

After identifying crypto as a marital asset and considering its valuation, you have four main options for dividing the assets in question:

Simple Division: In this approach, you simply receive a share of the cryptocurrency in its current form.
Custodial Holding: Should you not wish to set up a cryptocurrency account, you may find the custodial approach suitable. A third-party custodian who can transact in cryptocurrency receives your share and holds it until the divorce is final.
Cryptocurrency Owner Liquidation: The former spouse who owns the asset will convert the other party’s share to cash. The digital currency’s value on the day of sale determines how much money you receive.
Liquidation With No Claim Upon Remaining Cryptocurrency: This approach starts the same as #3. However, both parties have agreed in advance that the original owner of the cryptocurrency now has full title to the remaining asset and does not owe the former spouse any more of the cryptocurrency regardless of how its value may change in the future.

Choosing how to distribute cryptocurrency in a divorce requires careful evaluation. You may need to weigh advice from your divorce attorney to arrive at the best solution for your unique case.

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.

Lack of familiarity with cryptocurrency or outright discomfort with it add another wrinkle to divorce negotiations. Which is why 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.

A Guide to Divorce and Cryptocurrency

July 22, 2022

In 2022, cryptocurrencies are playing a big role in divorces. If you’re facing a divorce and lost on how to find, value and split cryptos, here’s what you need to know.

With the rise in popularity of cryptocurrency over the past few years, it is becoming a hot topic in many divorce cases. When it comes to dividing assets in a divorce, it can be difficult to know what to do with cryptocurrency. While there are many different types of cryptocurrencies, they all operate in fundamentally similar ways: they are digital currencies that can be exchanged for goods and services or other currencies, and many are traded on online exchanges.

This guide will give you a high-level overview of cryptocurrency and explain your options on how to deal with it in a divorce. Let’s take a look.

Cryptocurrency Basics

The rise (and falls) of cryptocurrency has been unlike anything we’ve ever seen. The market is so volatile that some have compared it to the Wild West. And yet, the demand for it seems insatiable. So what is cryptocurrency, and why are people so interested in it?

Cryptocurrency is a virtual or digital currency that can be used like real money as a medium of exchange. It is not a physical token, like a dollar bill, but is similar to an electronic payment system (think of swiping your credit card) as a way to pay for something.

Cryptocurrency “coins” are held in a digital wallet, which can be an online service, a software program, or a personal hard drive among other things. The wallet allows the owner to make secure transactions for goods and services or keep it as a type of investment. Since the coins are not issued by a central authority, like a bank or government, they are theoretically immune to inflation and other government interference.

Cryptocurrency and Taxes

When you sell or transfer cryptocurrency, it is treated as property and capital gains are taxed. You will incur a gain or loss when sold, transferred as payment for goods or services, exchanged with another crypto, and at other various scenarios.

You are required by the IRS to report gains and losses on each transaction even if the gain or loss is not material. The difference between the purchase price and sales/transfer price is what will be taxed.

If the value at the time of sale or transfer is more than the purchase price, you will incur a capital gain. If the value at the time of sale or transfer is less than the purchase price, you will incur a capital loss.

Understanding Cryptocurrency and Divorce

When you are going through a divorce, you will need to provide financial disclosures to your spouse. This includes information about your assets, income, and expenses. Cryptocurrency is considered an asset and not income. As such, it should be listed on your financial disclosures when you are going through the divorce process.

Most cryptocurrency holdings have a current value which is listed when you log into your account. The values listed are based on current exchange rates for that specific cryptocurrency to US dollars. However, values can fluctuate by a significant amount daily so it is important to keep this into consideration when using the value listed on the financial disclosures when dividing property.

How to Determine the Marital Portion of Cryptocurrency in a Divorce

Property division laws vary from state to state. A vast majority of states are equitable distribution states where assets are divided fairly but not always equally.

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. 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.

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.

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.

Cryptocurrency Series: 12 Most Popular Types of Crypto and What to Know Before Divorce.

May 6, 2022

Cryptocurrency is by design difficult to trace, making it an ideal asset to hide from a spouse. If you’re new to the world of Crypto, it gets even more challenging. Here’s a list of the most popular cryptos to look out for and how to include them in your divoce settlement.

If you’ve been following our Crypto and Divorce series you may already be aware of the difficulties crypto assets bear in divorce. As a quick recap, we’ll be covering what Cryptocurrency is as well as the 12 most popular types of crypto in the market.

With all of these forces at play during a divorce, it’s best to be prepared for whatever the outcome may be and hiring a family law attorney well-versed in cryptocurrencies is always an advantage. Here’s what you need to know about the 12 most popular types of Cryptocurrencies and how you can best prepare for them before divorce.

Cryptocurrency is a digital form of payment that can be used to purchase goods or services online. Every transaction is done online and tracked via a highly secure ledger called a blockchain. Let’s jump into some of the various types of crypto there is on the market.

Bitcoin (BTC)

Notably known as the most popular form of crypto, Bitcoin is widely known as the first major cryptocurrency to hit the market. It first debuted in 2009 and many others have become popular but not as popular as the original.

Bitcoin is still the coin people generally reference when they talk about digital currency. Its mysterious creator — allegedly Satoshi Nakamoto — debuted the currency in 2009 and it’s been on a roller-coaster ride since then. However, it wasn’t until 2017 that the cryptocurrency broke into popular consciousness.

Ethereum (ETH)

Ethereum is the second name you’re most likely to recognize in the crypto space. The system allows you to use ether to perform a number of functions, but the smart contract aspect of Ethereum helps make it a popular currency.

Ether is used mainly for two purposes: It is traded as a digital currency on exchanges in the same way as other cryptocurrencies, and it is used on the Ethereum network to run applications. According to Ethereum, “people all over the world use ETH to make payments, as a store of value, or as collateral.”

Tether (USDT)

Tether’s price is anchored at $1 per coin. That’s because it is what’s called a stablecoin. Stablecoins are tied to the value of a specific asset, in Tether’s case, the U.S. Dollar. Tether often acts as a medium when traders move from one cryptocurrency to another. Rather than move back to dollars, they use Tether. However, some people are concerned that Tether isn’t safely backed by dollars held in reserve but instead uses a short-term form of unsecured debt.

Binance Coin (BNB)

Binance Coin is the cryptocurrency issued by Binance, among the largest crypto exchanges in the world. While originally created as a token to pay for discounted trades, Binance Coin can now be used for payments as well as purchasing various goods and services.

USD Coin (USDC)

Tether and USD Coin are both stablecoins that are attached to the dollar, meaning that its value should not fluctuate. The currency’s founders say that it’s backed by fully reserved assets or those with “equivalent fair value” and those assets are held in accounts with regulated U.S. institutions.

Ripple (XRP)

Formerly known as Ripple and created in 2012, XRP offers a way to pay in many different real-world currencies. Ripple can be useful in cross-border transactions and uses a trust-less mechanism to facilitate payments.

Ripple is known for their advanced blockchain technology for global payments. Where financial institutions are able to expand into new markets around the world and eliminate pre-funding by leveraging the power of XRP.

Solana (SOL)

Solana was created in 2017 by Anatoly Yakovenko alongside current Solana board member and Chief Operations Officer Raj Gokal. Yakovenko, now Solana Lab’s CEO, came from a background in system design and wanted to apply his knowledge toward a new blockchain paradigm that enabled faster processing speeds.

Solana is a newer cryptocurrency and it touts its speed at completing transactions and the overall robustness of its “web-scale” platform. The issuance of the currency, called SOL, is capped at 480 million coins. Solana’s increasing popularity has made it Ethereum’s growing rival.

Terra (LUNA)

Using its currency Luna, Terra is a platform that helps backstop a range of stablecoins based on real currencies such as the dollar or euro. Terra helps stabilize the price of stablecoins through various technical means, and it also supports smart contracts.

According to the Terra website, the Terra protocol creates stablecoins that track the price of any fiat currency using a combination of open market arbitrage incentives and decentralized Oracle voting. On the Terra blockchain, users may spend, save, trade, and swap Terra stablecoins.

Cardano (ADA)

Cardano is the cryptocurrency platform behind ada, the name of the currency. Cardano is a proof-of-stake blockchain platform: the first to be founded on peer-reviewed research and developed through evidence-based methods. It combines pioneering technologies to provide unparalleled security and sustainability to decentralized applications, systems, and societies. Cardano was created by the co-founder of Ethereum, and this cryptocurrency also uses smart contracts, enabling identity management.

Avalanche (AVAX)

Avalanche is a fast and low-cost smart contracts-based blockchain platform focused on building decentralized apps and facilitating the creation of custom blockchains. Its users can process transactions in the native AVAX token.

The AVAX token is hard-capped which makes it a scarce asset that is used to pay for fees, and secret the platform through staking. Ultimately the hard cap provides a basic unit of account between the multiple subnets within Avalanche.

Polkadot (DOT)

Polkadot is a currency that connects blockchains which allows value and data to be sent across other incompatible networks. For example Bitcoin and Ethereum. It’s also designed to be fast and scalable.

The DOT token is used for staking and governance; it can be bought or sold on Coinbase and other exchanges. Polkadot was founded by another co-founder of Ethereum. Industry specialists believe Polkadot is looking to eventually dethrone Ethereum.

Dogecoin (DOGE)

Dogecoin originated as an alternative to traditional cryptocurrency such as bitcoin. Both the name and logo were based off of a meme that went viral. Dogecoin is intentionally abundant which is different in comparison to bitcoin which is scarce. In 2021, Dogecoin became one of the biggest cryptocurrencies in the market. Dogecoin crypto can be used for payments or sending money.

Divorce and Crypto 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.

Bottom Line

The cryptocurrency market could be compared to the Wild West. Although, the U.S. government has been taking on a more active role in overseeing crypto space. Volatility can be intense, with crypto assets fluctuating significantly even in a single day. This leaves individual investors to trade against highly sophisticated players, making it a fraught experience for beginners getting into crypto.

Regardless of your skill level, splitting digital currency may be more complex than traditional investments, such as stocks, bonds, or mutual funds. It is important to be prepared and make sure that crypto 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 in your divorce case.

Our team of award-winning attorneys are highly experienced in dealing with Cryptocurrencies in divorce, and are here to answer your questions about divorce and digital asset division.

Top 6 Signs Your Spouse is Hiding Crypto

March 30, 2022

Is my spouse hiding Crypto? We know hiding assets is a penalty-inducing divorce tactic used by many. But in 2022, soon-to-be divorcees are hiding money from family members and authorities using cryptocurrency.

Cryptocurrency nowadays can add new complications to a divorce. Just like any other marital asset, if cryptocurrency, or other digital currency was purchased, or increased in value, during the marriage, it is a marital asset that is subject to distribution in both equitable distribution and community property states.

In the fourth part of our Crypto Currencies and Divorce series, we discussed the situations in which we discussed the situations in which cryptocurrency can be found during the divorce settlement process and also if it can be lost within the settlement. While tracking down the funds isn’t an easy process, this article will give you signs to watch out for.

Here’s what you need to know if your spouse is hiding crypto.

1. Bank and Credit Statements

First things first, if you believe that your spouse is hiding cryptocurrency and has used marital money to purchase it, you should take an active role in looking for proof of your suspicions.

Cryptocurrency is usually purchased with liquid cash, so at some point money moves from a bank account into a cryptocurrency exchange. Certain websites function as the entry point for most people interested in obtaining or trading Bitcoin and other digital currencies. Look for popular echange names such as: Coinbase, Binance, Etoro, Coin Switch, Luno and PaxForex. All it can take is one initial transaction in “normal dollars and cents” to enter this new world of Bitcoin, where untold more digital currency can be obtained.

If you see any crypto activity, however insignificant, it’s worthy to investigate further — especially if your spouse omitted it from the initial deivorce documentation.

2. Crypto Wallets and Private Keys

Crypto keys make for excellent evidence. Each crypto wallet comes with a key that can then be traced to show all transactions associated with the wallet. A sure sign of Crypto activity in the household is the discovery of a crypto key. But not many know what to look for, since the key doesn’t represent a traditional metal object. So what do these keys look like?

A private key is a secret, alphanumeric password/number used to spend/send your bitcoins to another Bitcoin address. It is a 256-bit long number that is picked randomly as soon as you make a wallet.

The degree of randomness and uniqueness is well defined by cryptographic functions for security purposes.

This is how the Bitcoin private key looks:

2zJ4kLf5zgWrnogidDA76MzPL6TsZZY36hpXXssSzNydYXYB9fe

Many of these password keys are stored on a keydrive. If you happen to find this key, take note of it for evidence. Many hide these keydrives in a private and secure place, such as a safe, while others can simply save these password key codes hidden on their laptops.

3. Presence Crypto Exchanges in Apps

See if there are any crypto-related apps installed on shared electronic devices. Look for Bitcoin wallets like Coinbase, Mycelium, Ledger, SoFi, and Trezor, or apps for buying and selling crypto, like CEX.IO or BlockFi.

Any of the common exchanges listed above offer apps for mobile crypto banking. If you share one phone account, you may be able to access the history of all apps downloaded to any phone on your plan. If you are not able to obtain this information on your own, your attorney can add to this to items to be produced during discovery.

4. Loan Applications & Tax Returns

Another area to explore are loan applications and tax returns. If a person is trying to hide assets from you, and they are not disclosing Bitcoin or other cryptocurrencies on their net worth statement, they might record it on a loan application.

It’s also important to check if your spouse has reported crypto on tax returns. Reporting of digital currency is required by the IRS, even though there are those who fail to do so. In 2014, the IRS declared that virtual currencies are property.

5. Large Online Purchases

For spouses who are hiding currency, they don’t buy the initial crypto to put in their wallet, which in turn, avoids any direct charges made to a bank or credit account. Instead, they connect with a crypto user in one of the many user forums who is willing to accept goods that will be paid in said cryptocurrency.

The agreement might entail buying items of the crypto owner’s choice on Amazon, and in return, this crypto will be deposited in the owner’s empty wallet, giving them their entrance into this world. It’s important to remember that crypto wallets function completely outside the normal banking system, so no one will be the wiser should this transaction take place — unless you get smart about your spouse’s buying habits.

Scan Amazon and other online sellers. If you don’t have access to your spouse’s Amazon account, this can be something that your attorney requests to see during divorce discovery.

6. Secretive Behavior with Finances

If you still receive paper statements this is a great way to track down their use of bitcoin and other cryptocurrencies. If the paper trail used to show up in the mail and then suddenly stopped – that’s a red flag and should raise some suspicion.

It’s important to have passwords to all of your shared online bank and credit accounts, but if they’ve been changed, that’s again, another red flag. Call your bank and credit card company to request copies be sent directly to you for all joint accounts. Let your attorney know as soon as possible so that steps can be taken to make your spouse produce documentation of all joint accounts.

Final Thoughts

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.

At Masters Law Group, 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.