Solving Complex Family Law Issues with Creative Strategies

Cryptocurrency and Divorce: What to Know

California’s community property divorce laws compel divorcing spouses to first fully disclose their assets, and then divide and distribute the marital assets equally between both spouses. This division occurs either between the spouses, lawyers, and mediators in an out-of-court divorce agreement, or through litigation in court if they cannot agree on terms. While attempts to hide assets have long been common in contentious divorces, today’s ability for spouses to transfer assets into nearly untraceable digital currency has added a new layer of complexity. Some divorcing individuals now rely on forensic accountants to find assets hidden by a spouse through cryptocurrency.

What is Cryptocurrency?

We’ve all heard about cryptocurrency, but many non-investors remain uncertain about what it is. Cryptocurrency is a digital or virtual medium of exchange that’s used internationally without ties to any centralized bank or authority. Because all transactions are immediately encrypted, monetary transfers through cryptocurrency are nearly untraceable.

Because it’s very difficult to define and accurately value digital assets unlinked to any bank or government authority, cryptocurrency isn’t subject to inflation, government interference, or collapse. However, the stealthy or “cryptic” nature of financial transactions through cryptocurrency also makes this digital monetary medium an easy way to hide assets that would otherwise be subject to division during a divorce.

Is Cryptocurrency Considered Marital Property in a Divorce?

Like all assets in a marital property divorce state like California, cryptocurrency is subject to equal division in a divorce if it’s marital property and not separate property. Separate property includes any assets belonging to an individual before marriage, inherited by them, or gifted to them during the marriage—and didn’t become commingled with a spouse. Marital property includes all real estate property, bank accounts, valuables, vehicles, household goods, retirement plans, and investments—including cryptocurrency—accumulated during the marriage. If one or both spouses have invested significantly in cryptocurrency during their marriage, it’s an asset that’s subject to equal distribution.

When a spouse dutifully discloses digital assets, they can transfer the portion allotted to their spouse into the spouse’s account, cash out and divide the funds, or offset the asset by offering something of equal value. However, the same encrypted transactions and other safeguards that make digital currency an attractive investment also make digital or virtual crypto funds challenging to pin down if a spouse chooses not to disclose them.

How Do I Find Out if My Spouse Has Hidden Assets Through Cryptocurrency?

Crypto assets like Bitcoin, Ethereum, XRP, USD Coin, and others are easy to hide, sell, launder, or liquidate in minutes thanks to the same blockchain technology and cryptography that safeguard this type of currency from outside influences. Cryptocurrency is immune to court orders since it’s unassociated with any entity that could respond to such an order.

Unlike more traditional investments and tangible assets, it takes a skilled forensic accountant to

Identify assets hidden from a spouse through cryptocurrency. These experts look at previous tax records, search for withdrawals from traceable accounts, and look for signs such as the spouse’s previous history of cryptocurrency investments. Blockchain forensics experts can sometimes locate hidden virtual funds through advanced digital tools.

If a forensic accountant identifies a spouse’s undisclosed assets hidden in cryptocurrency, the spouse could face perjury charges with penalties including jail time and fines.