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A Guide to Divorce and Cryptocurrency

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.

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

 

The Dogecoin Divorce

Industry groups estimate more than 20 million Americans may own cryptocurrency, including Dogecoin. Now many are left wondering how to split holdings in divorce settlements. 

Divorce is one of the most stressful events that a human can endure. It can be physically, emotionally, and financially draining. Especially when you’re dealing with the division of your assets. Now that some of those assets have gone digital for an increasing number of people, an already complicated process stands to get more difficult.

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. You might have heard of Dogecoin, a crypto that has made big news lately for its wildly fluctuating value. There are more than 10,000 unique publicly-traded cryptos, with more being added every day.

In the sixth part of our Cryptocurrencies and Divorce series, 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, our third part of the series will give you a little more insight on the Cryptocurrency Dogecoin Assets.

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 Dogecoin and Divorce.

What is Dogecoin?

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. 

Since Dogecoin was created to be abundant, miners were able to produce more by the minute. DOGE was based on supply and demand, and that surged enomurlsey which inturn has given it a higher value- due to reddit threads popularizing this cryptocurrency. 

Fast-rising DOGE prices in 2021 attracted media attention due to social media memes, which created a cycle that attracted more investors and further increased prices. Whenever an asset sees such dramatic gains, people tend to have a fear of missing out, which brings waves of new traders into the fold. 

It’s important to note that DOGE remains a highly volatile cryptocurrency. Like any investment there is no guarantee that it will go up or down in the future.

Challenges of Crypto & Divorce

The rising popularity of cryptocurrency for investors means that it is becoming a factor in divorce settlements. Many spouses are attempting to hide their money inside crypto to keep it from being divided between themselves and their future ex-partners.  

​​The costs associated with uncovering hidden cryptocurrency assets can also be substantial. Before moving forward with a court order to uncover potential hidden crypto assets, a spouse and their divorce lawyers may want to make sure that they are relatively certain about the outcome. 

One of the biggest obstacles for divorcees is simply a lack of understanding about what crypto is and how it factors into the traditional financial portfolios of divorcing spouses. The amount of money involved is also a consideration. People with a few hundred or even a few thousand dollars in undisclosed cryptocurrency are rarely the proper target of such an investigation. An experienced family law attorney may help a spouse concerned about crypto assets decide whether or how to pursue a court order and full forensic investigation. 

Final Thoughts

Living in a digital age like we do today, where things become meme-able by the second due to social media, it’s important to stay in the know. That’s why Dogecoin, Bitcoin, and other cryptocurrencies are increasingly expected to pop up in a divorce settlements today and in the future.

Because 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 for dealing with it. 

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.

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