BY RYAN MCCALL ESQ.
Cryptocurrency has become one of the newest and most prevalent investments of the last two years. As a result, the courts are now faced with the prospect of having to evaluate and distribute cryptocurrency as a marital asset during a divorce proceeding.
What makes this new and innovative technology so complex is figuring out how much each cryptocurrency is worth.
Assuming a spouse is using a U.S.-based exchange, determining the value of an individual cryptocurrency is relatively simple. All that is needed is a subpoena duces tecum to that institution to obtain the necessary documents. Under these pretenses, the subpoenaing attorney would receive statements detailing how many funds were listed with that exchange and the assets could be easily valued as of any given date just as if dealing with stocks and investment assets.
However, what has become increasingly difficult is the rise of popular international cryptocurrency exchanges. Many of these exchanges are unregulated and will not comply with United States federal regulations. Courts should not be deterred by this in establishing a value for cryptocurrency as a marital asset.
In theory, certain cryptocurrencies—with the most popular one being Bitcoin—utilize blockchain technology, with each individual Bitcoin having a different identification number than the next. Blockchain technology has a continuous ledger of ongoing transactions that are performed and tracked.
With that being said, there are numerous ways savvy investors can attempt to hide their funds. The most popular way for someone to do this is through a “tumbler” which can issue a separate Bitcoin or fraction of a Bitcoin from the one currently in your possession. This creates a very difficult scenario for lawyers who would be faced with the task of attempting to track down these funds.
What is beginning to take place in the court system is identifying the value of a cryptocurrency based on funds that were withdrawn from an account.
For example, if someone were to electronically transfer 5,000 from a marital bank account to a crypto currency exchange that is not regulated, a judge would be able to peg the value of $5,000 to a specific cryptocurrency and appreciate the value from there based on the date of the withdrawal.
In the event someone was to claim that they do not currently have the asset or exchanged it for a different cryptocurrency that performed poorly, the court should issue a value that would create a rebuttable presumption for the party that is alleged to have withdrawn the funds from the marital account.
While many have still yet to learn about cryptocurrency, with the massive increase in popularity it has sustained, cryptocurrency issues related to divorce proceedings are guaranteed to increase in the coming years. It is important that with this new form of investment, you understand how the courts will view them in the event of a separation.
If you are going through a divorce, it may be beneficial to you and your future to consult with a legal professional with experience in this area so you can best manage your assets.