Cryptocurrencies can be difficult assets to locate as they are often traded pseudonymously and are potentially a good way to hide assets during divorce. Cryptocurrencies may just be a currency trend, but they are an increasingly commonly-held asset. They need to be dealt with in equitable distribution during a divorce in the State of California.
Since 2009, cryptocurrency, a form of decentralized virtual currency, has been increasingly traded, often on virtual currency platforms. Stored in virtual or cryptocurrency “wallets” on desktop, smartphone or cloud-based software, they are often anonymously owned and traded under a fictitious name (pseudonymously).
Virtual currency may be used to pay for goods or services or held for investment. Although Bitcoin is the most well-known type of cryptocurrency, there are now various types of these “coins” that include Bitcoin down to “penny-stock” type of exchanges.
Equitable Distribution of Virtual Assets
Cryptocurrencies follow the same rule of asset division in a divorce. For example, if at the time of divorce there exist two Bitcoins and no marital exemptions apply, then each party should generally be entitled one Bitcoin. As with any asset, one party could buy the other out provided there is agreement as to the valuation of the cryptocurrency. The main concern in family law is protecting against a party attempting to hide these digital assets.
Because cryptocurrencies can be transferred to others under a fictitious name, it can be difficult to determine the actual owner. A family law attorney can add specific cryptocurrency questions to all initial discovery requests. Your divorce attorney may also find it helpful to ask in interrogatories whether the spouse owns or has ever owned any cryptocurrencies. By specifically addressing the cryptocurrencies, the opposing spouse is more likely to be upfront. At the very least the other spouse is more likely to be sanctioned if it is later discovered there was an attempt to hide virtual assets.
Finding Hidden Cryptocurrency
If you suspect your spouse of hiding cryptocurrency, there might be ways to discover the asset. Bitcoin and the like are generally pseudonymously held, but their purchase and sale do create trails. For example, cryptocurrency is generally purchased using fiat currency thus creating a record. Most cryptocurrencies are purchased via an exchange such as Coinbase.com. These exchanges charge transaction fees. You could subpoena these exchanges to obtain (with careful care) the transaction records.
Additionally, the IRS has recently issued a summons seeking “a wide variety of records (from Coinbase.com) including taxpayer identifiers for all its customers who have bought, sold, sent or received cryptocurrency worth $20,000 or more in any tax year from 2013 to 2015; transaction logs; and correspondence. Tracking these assets on tax forms should make it easier to follow the crypto trail in the near future. If you believe that sufficient hidden cryptocurrency assets may exist, it may be worth the expense of hiring a forensic accounting expert.
Cryptocurrencies can be difficult to discover. A family law attorney is able to use innovative discovery and forensic accounting techniques to uncover any cryptocurrencies your spouse may have, as well as advise you of your rights to these virtual assets.