Small-Firm Care. Large-Firm Experience & Power.

Cryptocurrency and Divorce: It’s Complicated

| Jun 16, 2021 | Divorce

Cryptocurrency. It’s in the news a lot these days, and not just because it’s becoming an increasingly popular financial asset.

It’s also adding a new level of complexity to some divorce proceedings.

The division of marital assets can be challenging enough when it only involves traditional financial assets such as savings accounts, pensions, 401(k) accounts, stocks, and bonds. Now, investing in cryptocurrency is becoming a popular way for spouses to hide money from one another.

Maybe you and your spouse are completely forthcoming with each other about all financial matters in your marriage, so you’re confident that you know about each and every investment that has been made. But are you 100% certain?

If you’re thinking about ending your marriage – or if you’ve already made the decision to divorce – cryptocurrency should be on your (and your divorce attorney’s) radar. With industry experts estimating that upwards of 20 million Americans own cryptocurrency, overlooking the possibility that your spouse is one of them could be an expensive mistake.

With that in mind, below are answers to some commonly asked questions about cryptocurrency and divorce. You may end up not needing this information, but it’s much better to be prepared.

What exactly is cryptocurrency?

If you’re scratching your head and wondering what all this talk about cryptocurrency really means, you are not alone. Cryptocurrency was invented in 2009, so it is still relatively new – particularly to mainstream investors. There are more than 1,000 types of cryptocurrencies. One of the most well-known is Bitcoin, which many investors consider to be the original cryptocurrency. Another popular cryptocurrency is Ethereum.

Essentially, cryptocurrency is digital currency. Just like traditional, physical currency, cryptocurrencies can be used to purchase goods and services. They can also be traded or sold, and they can store or grow value, which may make purchasing and holding onto a cryptocurrency a good investment.

Unlike traditional currency, however, cryptocurrency is completely virtual and decentralized. It is produced, tracked, and managed through a distributed ledger such as blockchain. In this system, a cryptocurrency is processed and the record of its movements tracked by computers in a decentralized network. This protects the integrity of the financial data and the ownership of the cryptocurrency. Since cryptocurrencies are not issued by a central authority, it is largely free of any government interference, manipulation, or regulation. Instead, they are maintained and valued by their owners.

Owners hold their cryptocurrency in what is known as a digital wallet, and then buy or sell their cryptocurrency through an online exchange. While the data base of transactions is public, the data about individual transactions and the people involved is kept secret. Blockchain technology ensures the security of cryptocurrencies through cryptography. It also makes cryptocurrencies almost impossible to counterfeit.

As you can imagine, the security around blockchain technology and cryptocurrencies can make it extremely difficult to determine if an individual owns cryptocurrency. But difficult does not mean impossible.

What are some signs my spouse may be hiding cryptocurrency to keep it out of our divorce?

Determining if your spouse owns cryptocurrency that they are not disclosing is not easy. However, there are a few questions you should consider that may be signs your spouse is hiding cryptocurrency:

  • Has your spouse ever expressed or shown an interest in digital currency?
  • Did your spouse, at any time, mention that they had purchased or were considering purchasing cryptocurrency?
  • Is a chunk of money missing and unaccounted for from your joint checking or savings account or other account?
  • Does your spouse have extra money despite not receiving a raise or bonus at work?
  • Is your spouse making expensive purchases but is unable or unwilling to explain how they are covering these expenses?

If you answered yes to these questions, it’s possible that your suspicions are correct and your spouse could have undisclosed cryptocurrency.

However, it’s also possible that they do not have undisclosed cryptocurrency. If money is missing and unaccounted for, maybe your spouse used it to purchase cryptocurrency, or perhaps they have been gambling, having an affair, supporting a second family, or lending money to a friend or family member without your knowledge.

Unfortunately, if your spouse isn’t talking, the only way to know for sure if they have hidden cryptocurrency is to track it down.

I’m pretty sure my spouse is hiding cryptocurrency. How do we find it?

Depending on the amount of cryptocurrency involved, your divorce attorney may bring in a forensic accountant to conduct a thorough investigation into your spouse’s financial records and holdings.

As part of the investigation, the forensic accountant will examine digital data for crucial information such as digital currency ticker symbols, and check email accounts for confirmation emails regarding exchanges. They will review bank statements for evidence of transfers and even look to see if your spouse listed cryptocurrency as an asset on any past loan applications. The forensic accountant may also search devices for login credentials or evidence of a cryptocurrency wallet.

Everything is fair game and the forensic accountant will put their considerable accounting, auditing, and investigative skills to work. While there are no guarantees, if your spouse is hiding cryptocurrency, a forensic accountant may be your best chance at tracking it down. Without proof that the cryptocurrency exists, and details regarding the type and amount of digital currency involved, it cannot be included in the division of assets.

Is it worth going after cryptocurrency my spouse is hiding?

Confirming that your spouse is hiding cryptocurrency in your divorce and then tracking down that digital currency may be challenging. It may also be expensive, as forensic accountants are not cheap. The decision to pursue the matter is one that only you can make. If you have reason to believe that your spouse has purchased cryptocurrency that they are not disclosing in the divorce – and if there is a significant amount of money involved – it may be worth the cost of hiring a forensic accountant.

It may be worth uncovering the type of cryptocurrency your spouse has purchased – and how much. As the value of certain cryptocurrency increases, you could stand to profit nicely off of your share of the cryptocurrency in the divorce agreement.

Is there anything else about cryptocurrency that complicates a divorce?

Determining if your spouse secretly purchased cryptocurrency and is hiding it from you and your divorce lawyer is only the first step. Once you (and your forensic accountant) have confirmed the existence of said cryptocurrency, a value must be placed on the digital currency. This can be challenging because the value fluctuates daily. Throughout the course of your divorce proceedings, the value of the cryptocurrency could rise or fall dramatically. Including provisions addressing just these issues can, and likely should, be included in your divorce contract.

If the time has come to end your marriage and you’re concerned that your spouse secretly owns cryptocurrency, you need an experienced Maryville divorce attorney on your side. The seasoned East Tennessee divorce lawyers at Shepherd & Long, P.C. are knowledgeable about all aspects of divorce and the tricks people use to hide financial assets – including cryptocurrency. Contact us today to schedule a free consultation with a member of our caring legal team. Call us at 865-383-3118 or complete our online contact form.