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Divorce complication: Cryptocurrency

On Behalf of | Jun 21, 2021 | Property Division

News media has in recent days been reporting on the wild fluctuations in value of the cryptocurrency Bitcoin. The digital money soared to more than $63,000 back in April but has retreated to around $32,500 as we write this post to our Milwaukee Family Law Blog in June.

No one knows what a Bitcoin will be worth later today, tomorrow or a month from now. It could scale greater heights or crash even harder. That newsworthy volatility is just one aspect of Bitcoin – and other cryptocurrencies, such as Ethereum, Ripple, Stellar and Dogecoin – that can complicate asset division in divorce.

“Cryptocurrency has added a layer of complexity” to divorce, certified financial planner Davon Barrett told CNBC.

It’s estimated that more than 20 million Americans own cryptocurrency, which means it is an increasingly likely factor to be considered when couples split.

Crypto basics

Perhaps the most appealing aspects of cryptocurrency are its security, the anonymity of its owners and its independence from government, banks and brokerages.

Transactions made with crypto are recorded in “blocks” of encrypted data that become part of a “blockchain” (all transactions by all users). Though the blockchain is public information, the identities of the parties are masked by encryption.

Cryptocurrency owners can hold their crypto in an exchange, which is accessed with a private key (password). Without that private key, it can be virtually impossible to know who owns the crypto – which means cryptocurrency is a means of hiding assets in divorce.

Tracking crypto down

Though a person can buy event tickets, electronics, travel and pizza with crypto, Tesla no longer allows car purchases with digital currency.

While there is an increasing number of items that can be purchased with digital currency, most crypto owners will at some point want to exchange their “coins” for real dollars, which means they’ll engage in a transaction that can be traced.

An analysis of a spouse’s bank accounts, credit card records and transactions with cryptocurrency exchanges can provide evidence that crypto is being used to hide wealth in a divorce.

It should be noted that hiding assets in a Wisconsin divorce is illegal and can result in the court imposing severe penalties on the offending party.

More crypto complications

Crypto’s renowned volatility can also throw a wrench into property division in divorce. Crypto that’s worth $100,000 today might be worth $50,000 or $500,000 tomorrow. In many cases, family law attorneys create a volatility equation as part of the property division settlement that factors in big swings in crypto value.

If a spouse has enjoyed significant gains in crypto assets, there might also be capital gains tax considerations to include in the settlement as well.

Discuss these and other matters with a family law attorney experienced in protecting client rights and interests in divorce.