Dividing Cryptocurrency and Bitcoin During Divorce

Divorce Crypto

Once upon a time, the concept of a payment system like cryptocurrency existed solely in the realm of science fiction. These days, not only is cryptocurrency real, it’s used by millions of people around the globe, every day. 

Cryptocurrency has a lot of user benefits. However, when it comes to divorce, these same benefits present some unique challenges to dividing marital property. Which is why—if you’ve ever invested in digital currency—it’s so important to have a financially savvy team of experienced lawyers to assist with your divorce

Here’s what you need to know about dividing cryptocurrency and bitcoin during divorce, and how the North Texas Family Lawyers team can help you navigate the complex waters of this unique currency. 

What is Cryptocurrency?

First off, cryptocurrency (also known as “bitcoin,” “digital gold,” and—our personal favorite— “magic internet money”) is a type of currency, which can be used to purchase goods and services online. 

Some cryptocurrencies—such as Bitcoin, the most widely used digital currency—can be used to purchase a wide range of things. Others, however, are more like tokens, and are limited to commodities provided by certain companies (kind of like a poker chip).  

Cryptocurrency has no physical form. It exists solely online and has no central database. Instead, information is stored in blockchain; a type of technology that decentralizes information, spreading it across many different computers, which makes it harder to track, hack, and trace.

Pros and Cons

As we mentioned above, this type of currency has a lot of advantages. For starters, it’s a lot easier to transfer funds from one party to another, and—without needing to rely on a physical bank—you can make a transaction anywhere around the world for a fraction of the price. Cryptocurrency is also a lot more private and secure than traditional money, and it’s increasing popularity makes it a good investment for couples who want to diversify their portfolio.

On the other hand, cryptocurrency’s worth is in constant flux, making it difficult to know exactly how much you have at any given time. It’s also not backed by a bank or government institution, so there’s no safety net to catch you, if something happens to your money. In addition, all that extra privacy and decentralization makes cryptocurrency an attractive payment system for illegal activities—not to mention a headache when it comes to dividing marital property, during divorce. Here’s why.

Dividing Cryptocurrency During Divorce

Texas is a community property state, meaning that any assets, debt, or property collected while married belongs to both spouses, equally (no matter whose name it’s in). On the other hand, property acquired before marriage is considered separate property, and will leave with that person, upon divorce. 

While cryptocurrency is a unique asset, it’s still considered property, and is subject to division, upon divorce. To do this, the court will follow the same process as they do for all other marital property, which includes these four steps:

  1. Identify property. 
  2. Characterize property as either separate or marital. 
  3. Value property.
  4. Divide property between spouses.

However, while the steps for division might be the same, the very nature of cryptocurrency means that it can sometimes pose a few unique challenges for divorce courts.  

The Challenges of Dividing Cryptocurrency During Divorce

One of the challenges with cryptocurrency revolves around valuing its worth.

Digital money (such as Bitcoin) has a constantly fluctuating worth—some days it’s high, some days it’s low—which can sometimes cause a few snags during divorce negotiations, especially when trying to compare cryptocurrency’s worth compared to other marital assets. 

To get the most accurate accounting possible, judges will often wait until the day a divorce is finalized, to value an account. However, valuing isn’t even the biggest challenge…

Cryptocurrency was specifically designed with security and privacy in mind. Blockchains cannot be connected without the proper passkey, and names are never used. Instead, account holders are identified by numbers, only. These are all great things for consumers, but not so great when trying to divide property.

If both spouses are aware of the account—and both have the passcodes—then dividing cryptocurrency becomes relatively simple. All financial information will be turned over to the judge, who will take these investments into consideration when dividing the rest of the couple’s property.

On the other hand, if both spouses don’t have the necessary passcodes, all that privacy and extra security makes tracking down assets tricky—if one spouse is trying to hide assets.

Previously Undisclosed Assets

While cryptocurrency might seem like an attractive option for hiding assets from divorce court, it’s definitely not wise to tempt fate on this one. 

For starters, it’s extremely difficult to completely cover your tracks. Cryptocurrency might make the cat-and-mouse game harder for a judge, but ultimately forensic financial experts have been dealing with crooks longer than you’ve been thinking about trying to hide assets. They have tools, skill, and experience on their side, and it’s unlikely you’d be able to get away with it.

Furthermore, if the court does discover previously undisclosed assets, your original divorce order will likely need to be amended, and your division of property reassessed. In this situation, there’s a high likelihood that your share would be significantly diminished—especially considering that Texas is one of the few states that still allows for a fault-based divorce.

If you’re worried that your spouse might try to hide assets through cryptocurrency, talk to your family law attorney as soon as possible. In some cases, it might be necessary to issue a temporary restraining order (TRO), to keep them from touching assets before your divorce is finalized.   

Cryptocurrency Divorce Attorneys in Texas

Cryptocurrency might once have sounded like something out of a sci-fi novel, but today it’s a commonplace exchange system and a lucrative investment. Which is why if you’ve invested in digital money, you’ll want a firm that’s skilled in handling the complexities of this unique currency.

If you have more questions about dividing cryptocurrency during divorce, we want to hear from you. Call us today at (972) 402-6367, or schedule a consultation online, and together, we can ensure that this unique marital asset is handled with the care it deserves.

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