Cryptocurrency and Divorce

Property Division in a Divorce

by Attorney Talia Simonds

In Massachusetts, the Probate and Family Court requires spouses to make a full financial disclosure in a divorce in order for the divorce to be granted.  That is accomplished through exchanging Rule 401 Financial Statements, exchanging Rule 410 financial disclosure, and conducting discovery through  interrogatories, requests for production of documents, and subpoenas.  It’s not uncommon as part of a divorce for spouses to have concerns about their spouse hiding assets.  This is why the full financial disclosure is so critical. 

One way that spouses are beginning to try to hide assets increasing is through cryptocurrency.  The reason cryptocurrency is an easier way for spouses to try to hide their assets is because it is an intangible asset in which the account does not have the account holder’s name tied to the asset.  Unlike a brokerage, retirement, or bank account, depending on the type of cryptocurrency that the spouse has invested in, there may or may not be monthly or quarterly statements issued showing the account balance and/or transaction history.  Although Bitcoin is the most common form of cryptocurrency, there are over 2,000 other forms of cryptocurrency, which can make it even more complicated in trying to find cryptocurrency assets in a divorce.  Further, lawyers and financial experts may not necessarily discover that a spouse owns cryptocurrency by reviewing other financial records, such as bank and credit card statements, which is a common way of discovering hidden assets.  

However, it’s not impossible to find cryptocurrency in a divorce.  You and your lawyer just know how to look for it, or even more importantly, who and how to ask for it.  If you believe that your spouse may own some cryptocurrency  that he/she has failed to disclose, you should talk to your attorney.  Your attorney can propound interrogatories and document requests to your spouse regarding cryptocurrency, requiring your spouse, to answer the interrogatories and produce documents relating to the cryptocurrency accounts.  Your attorney can also issue a subpoena to cryptocurrency exchange companies, such as Coinbase, to obtain records relating to your spouse’s cryptocurrency exchange account.  This discovery can be very technical, so you need an attorney who knows what questions to ask, and who to ask for that information and documentation.  Your spouse may or may not be the best person or company to ask for this information.  

Discovery relating to cryptocurrency can be complicated by the fact that people can trade and transact business with cryptocurrency on the “dark web,” which is a portion of the internet where criminal activity takes place, and even terrorism, and this portion of the web is often riddled with viruses and malware.   Obtaining discovery on a spouse’s cryptocurrency on the dark web can be very challenging, if not impossible.  Discovery on the dark web should not be done unless you have an engaged a technical expert who has experience conducting this type of discovery.  

If you believe that your spouse is trading a large volume of cryptocurrency, it may be important to see if they own and operate their own cryptocurrency server or cryptocurrency mine.  If this is the case, it may be necessary to engage a forensic investigator who knows how to evaluate the server or mine to ascertain the cryptocurrency owned by that spouse.   It is critical to use an expert in these circumstances, because there are ways to unknowing sell, or transfer the cryptocurrency to another account, or even delete the cryptocurrency account, if you are not knowledgeable enough in investigating cryptocurrency.

After the computer forensic investigator is finished with discovering and ascertaining the bitcoin on the server, it may still be necessary to engage a forensic accountant knowledgeable in cryptocurrency to ascertain the volume and value of cryptocurrency your spouse owns.  Although this can be costly engaging multiple experts, depending on how much your spouse has invested in cryptocurrency, the benefits can be significant.  Earlier this year, 1 Bitcoin was worth approximately $6,700, so it can be very worth while to engage these experts and conduct this discovery in your divorce, if your spouse owns Bitcoin or any other cryptocurrency.  

Thankfully, the IRS is recognizing that cryptocurrency is becoming a more popular commodity.  Starting with tax year 2019, all taxpayer must disclose cryptocurrency transactions on their federal tax returns.  Since federal tax returns are almost always exchanged in divorces, this will make cryptocurrency more easily discovered for a full financial disclosure in a  divorce.  

Cryptocurrency is becoming an increasingly popular commodity.  Unfortunately, it is a more difficult asset to discover in a divorce if it is not disclosed by the spouse who owns the cryptocurrency.  Thankfully, there are tools to find cryptocurrency as an asset in a divorce.  It may require engaging some experts, but it can be worthwhile, depending on how much a spouse has invested in cryptocurrency.  

For more information about getting a divorce during the coronavirus, or if you want to move your divorce or family law issue forward then please contact Amaral & Associates P.C. today at (617) 539-1010.

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