Bitcoin is about to have its tenth birthday — and it’s starting to complicate many a divorce. From asset allocation to tax implications, digital currency is disrupting the business of dissolution.
What is Crypto?
The cryptocurrency world is a mushrooming market among early adopters, but the average person is only ambiently aware of them. They’ve likely heard of Bitcoin — maybe even Ethereum — but only vaguely. They know it’s some form of “digital money,” but that’s about it.
If that’s you, here’s a quick overview of what cryptocurrency is and how it works.
- The most basic way to think of cryptocurrencies is as digital money. However, unlike fiat currencies (i.e., dollars, yen, rubles), they don’t have a physical form, and, as of now, aren’t universally accepted. Units of cryptocurrencies are called “tokens.”
- People create and trade cryptocurrencies using “blockchain” technology. Since we all don’t have PhDs in programming, for our discussion, think of blockchain as a digital ledger technology that facilitates crypto transactions.
- Transactions aren’t marked with personal, identifying information but instead with encrypted alpha-numeric codes.
- Token holders are responsible for keeping track of their sales and purchases, and must report gains if they trade crypto holdings for fiat currencies. Most folks use exchange platforms to facilitate this.
- Unlike the traditional money market, the digital currency ecosystem is decentralized. Transactions are checked against ledgers on multiple computers, making it attractive to people with anti-authoritarian sensibilities and privacy concerns.
How Does the U.S. Government View Cryptocurrency?
The Internal Revenue Service and Securities and Exchange Commission are the two U.S. government agencies most involved in crypto governance and enforcement. The Federal Trade Commission also monitors ICO and token advertising.
Generally speaking, the feds treat cryptocurrency holdings like an asset property, which means it’s tied to tax responsibilities and reporting.
How Cryptocurrencies Complicate Divorce Settlements
Now that digital tokens have been around for about a decade, divorce lawyers are encountering them in an increasing number of marriage dissolution cases — and crypto is causing headaches.
Tracing Assets
Since cryptocurrency transactions don’t “carry” the standard data (name, address, et cetera), they’re much tougher to trace. Moreover, holders often store tokens offshore with third parties not beholden to U.S. subpoena authority. That doesn’t mean they’re impossible to trace. However, if you don’t have the experience, the learning curve could prove insurmountable.
Hiding Assets
The reasons why tracing crypto assets can be difficult are the same ones that make hiding them easy. If one spouse suspects the other of hiding tokens, unearthing them can get complicated. For example, a judge may order the seizure of a phone, computer, or tablet that contains access to the “gateway” (a wallet or exchange) to crypto holdings. But if you don’t know how to access it or ask for the right information, you may, at worst, never find the goods, or, at best, spend loads of extra time petitioning the court for various assets that ultimately prove fruitless. Moreover, even if you get all the information you need, you still need someone who understands how to maneuver through exchanges and wallets.
Tax Implications
Cryptocurrencies can also create a tax headache for divorcing couples. Since it’s assessed as property, things can grow exceptionally thorny if clients opt to share their holdings after separating. Moreover, what if the holdings are offshore? Do they need to comply with FBAR reporting requirements? What about state taxes if they move to different ones? We have the answer to all of these questions and more.
Do You Need Help with a Cryptocurrency Divorce Matter?
The Gordon Law Groups works with divorce attorneys and individuals who need help sorting through digital currency complications in dissolution cases. Whether you need questions answered or help with a cryptocurrency maze, our team has the know-how and connections to get what you need. We’ve been involved in the blockchain and digital currency scene since its beginnings and can smoothly guide you through the process.
Our firm works with other attorneys across the country and around the world. Get in touch today. Let’s chat about how we can be of assistance.
