Bitcoin is Here to Stay—Handling Cryptocurrencies in a Divorce

Make sure your divorce attorney understands you have Bitcoin assets when you are discussing division of property. More divorces are involving cryptocurrencies than ever before, and the value of those currencies in some situations is extremely high. It is critical, as with every divorce, that both parties properly report their assets; if one fails to do so, the search for the monies can be time-consuming and costly.

There are options available to track Bitcoin, but many lawyers are unsure how to utilize them (or even familiar with the currency itself). Courts, on the other hand, are used to dealing with cases that require tracing assets, particularly those stored offshore, which is a little like the types of Bitcoin holdings that are currently emerging in divorce court. Since Bitcoin’s inception over a decade ago, the field of cryptocurrencies has grown rapidly, and the next big digital token could be issued tomorrow. Due to the growing area of cryptocurrency, it is important that the legal field stays on top of the changing technologies and the issuance of various coins to safeguard their clients from deception.

How are Cryptocurrencies Divided in a Divorce?

California is a state that recognizes community property laws at divorce. Rather than sharing marital assets and properties in an equitable or fair manner, the courts divide community property in half, regardless of the circumstances. Regardless of who brought the asset or debt into the marriage, if your divorce case goes to trial, you and your husband will have to distribute all of your communal property 50/50. There is no exemption, even when it comes to digital property.

If one or both divorced parties acquired Bitcoin or another cryptocurrency during the marriage, it will almost certainly be deemed common property. Community property is expected to be divided equally between spouses under California law.

If one or both spouses brought their own cryptocurrency into the marriage, it will almost certainly be deemed separate property. If one person inherited it or received it as a gift, it will almost undoubtedly be regarded as separate property. Separate property is not usually divided in the same way that common property is and not subject to California law of community property. 

What is Bitcoin? 

Satoshi Nakamoto, a pseudonymous individual or group, developed Bitcoin in a white paper published in 2008. Bitcoin is a digital currency that enables for secure peer-to-peer transactions via the internet, and it is supposed to be an appealingly simple notion.

Unlike services like virtual banks or digital money transfer services, which rely on the traditional financial system for permission to transfer money and on existing debit/credit accounts, bitcoin is decentralized: anyone, anywhere in the world, can send bitcoin to anyone else.

Every Bitcoin transaction is recorded on the blockchain, which is analogous to a bank’s ledger or log of clients’ funds entering and exiting the bank. In simple terms, it’s a log of every bitcoin transaction ever made.

What are Cryptocurrencies? 

A cryptocurrency (or “crypto”) is a type of payment that may be sent around the world without the need for a central monetary authority such as a government or bank. Cryptocurrencies, on the other hand, are created using cryptographic processes that allow users to purchase, sell, and trade them safely.

Cryptocurrencies can be used to buy and sell goods and services, but they are most commonly employed as investment vehicles. Cryptocurrency is also a crucial aspect of the operation of some decentralized financial networks, where digital tokens serve as a transactional tool.

Bitcoin, the most popular cryptocurrency, has a history of price volatility. It reached an all-time high of over $65,000 in 2021 before its most recent decline. Bitcoin can be purchased 7 days a week, 24 hours a day, which is why the price fluctuates so frequently. 

Court Ruling on Cryptocurrencies in California Divorce

Changes in technology and currency have had an impact on not only the global economy, but also on divorce settlements and property division. This was proved in a recent California divorce case in which the husband failed to disclose information about his cryptocurrency investments, violating his fiduciary duty to his wife and her stake in the communal estate. 

The wife in this instance filed a divorce suit in January 2013. The husband made three bitcoin transactions in April 2013. The majority of his $45,000 was eventually ensnared in a bankruptcy proceeding. He eventually recovered a modest sum and acknowledged possession of 1,062 bitcoins in his financial reports in February 2014. The court allegedly determined that the bitcoins were communal property and split them equally between the spouses. It was only after the wife attempted to collect her share of the bitcoins that the remaining coins were discovered to be bankrupt. At the time, the value of bitcoins had skyrocketed, and the original $45,000 investment had grown to $8 million.

In a motion to the court, the wife requested that half of the bitcoins’ worth be transferred to her and that her attorneys’ fees be paid. The motion was granted by the court, which found that the husband had breached his fiduciary obligation to his wife, and she was owed half. The husband subsequently filed an appeal, which upheld the lower court’s decision. 

Finding Hidden assets in Cryptocurrencies

With the advancements in financial technology, it is becoming easier for tech gurus to hide assets. This makes dividing property during a divorce more difficult. However, there are ways to find “hidden” assets in cryptocurrencies. 

The way to do this on a personal level is to collect a year’s worth of bank statements. Make a graph of the cash withdrawals. If you see a pattern of high cash withdrawals from a specific location, check to see if there are any bitcoin ATMs nearby. This is a clear sign there are assets invested in cryptocurrency. This is a low cost way to find hidden assets, however, not always effective. 

Another way to locate cryptocurrencies at a higher cost is to hire a forensics specialist who is an expert in this field. Sometimes, hiring an expert or seeking professional advice is the only answer if you want to ensure all property and assets are on the table before finalizing the divorce. 

Contact The Law Offices of Steven M. Bishop 

If you are going through a divorce and one or both parties has invested in cryptocurrencies, contact an experienced attorney today. For a free consultation call The Law Offices of Steven M. Bishop at 619-598-0152 or contact us through our online system.


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