Hidden Cryptocurrency and Divorce

Have you ever wondered if your spouse is hiding assets in cryptocurrency accounts and digital assets? Hidden cryptocurrency is an emerging issue in divorce. Understanding how the technology works, and how it impacts your divorce action can help you make the strongest case to receive a fair property distribution even in the face of a dishonest spouse trying to hide assets.

Could Your Spouse Be Hiding Assets in Cryptocurrency?

A recent Markets Insider report revealed that hidden cryptocurrency is becoming a new problem in divorce cases across the country. Bitcoin, NFTs (Non-Fungible Tokens), and other blockchain technologies are posing challenges to individuals and their attorneys trying to receive a fair property distribution when their spouses are actively trying to hide their assets. That is because the decentralized nature of blockchain technology makes it difficult to trace assets through traditional forms of discovery and can complicate enforcing judgments awarding the non-investing spouse any share in the cryptocurrency assets.

Additionally, it is important to note that the things that are acquired without any financial record showing the purchase may also show the existence of hidden accounts.

Cryptocurrency and Divorce: What You Should Know

Pennsylvania’s property division laws give state courts the authority to equitably divide all marital property accumulated by either spouse during the marriage. This includes everything from bank accounts and stock portfolios to pieces of art and stamp collections. It also includes digital assets purchased or obtained using funds earned during the marriage.

Unfortunately, digital assets including cryptocurrency can be harder to identify than physical objects or bank accounts. If one spouse is hiding crypto assets, the other spouse may not even know the accounts exist. Small transactions purchasing a handful of cryptocurrency at a time might fly under the radar, leaving you with no idea how much money your spouse has invested into this emerging and unpredictable market.

Bitcoin, Coinbase, and other forms of cryptocurrency don’t tie investors’ names to their accounts. Instead, each account is given a unique identifier number, which is logged in the decentralized blockchain ledger. This can cause a problem for cryptocurrency in divorce because if you don’t know your spouse’s unique identifier number, your attorney won’t be able to obtain records related to the account.

It can also be difficult to determine exactly what a Bitcoin portfolio or digital wallet is worth. Cryptocurrencies are volatile markets. The value of a single Bitcoin, Dogecoin, Litecoin, or Ether can rise or fall drastically in a number of days. For example, on June 7, 2022, the exchange rate of Bitcoin to the United States Dollar was 31,148.30, but ten days later on June 17, 2022, it was only 20,444.50, a drop of just over ⅓ the value. The divorce process can take months, sometimes up to a year, from start to finish. This means that the estimated value of a digital wallet at the start of discovery could be wildly inaccurate by the time the case goes to trial.

Options for Dividing Digital Currency During Divorce

If you think your spouse has hidden cryptocurrency, or if both parties have invested in digital assets during the marriage, you do have options in finding and dividing those assets during your divorce:

• Mutual exchange of account statements or screenshots of digital wallet balances (this is the lowest conflict option and most often used when both spouses knew about the crypto investments)
• Exchange of Unique Identification Numbers (this is not recommended without protective orders in place to prevent tampering or claiming the identifiers)
• Formal discovery including interrogatories and requests to produce (this directs your spouse to disclose the existence of crypto accounts, but may not address their values)
• Forensic accounting to track the purchase of cryptocurrency with marital funds and the appreciation or depreciation of those accounts (this requires hiring an expert witness and obtaining extensive banking information)

Unfortunately, if a spouse is actively trying to hide cryptocurrency, they may well “forget” to disclose those accounts during discovery. It is important for your divorce attorney to ask specific questions about the existence of different types of cryptocurrency, and demand full disclosure to avoid these lies of omission.

Once you know what cryptocurrency assets exist, you have a few options about how to divide them:

• Opening separate accounts for each spouse and using blockchain transactions to award each spouse an equitable share of the crypto assets
• Ordering the investing spouse to disclose the unique identifier number and digital key needed to access the cryptocurrency account (you should still transfer the assets to a new account to avoid your spouse reclaiming possession of the account after the fact)
• Awarding an equitable distribution of other marital assets to offset the value of the hidden cryptocurrency accounts (this will require determining the current market value of the crypto accounts at the time of trial)
• Determining that the marital funds originally used to purchase the cryptocurrency are weighed against the investing spouse as part of their equitable distribution of property (this could result in an inequitable distribution if the value of the assets has changed significantly since investment)

Other Types of Digital Assets Overlooked in Divorce

While most of the news is around cryptocurrency and divorce, there are other digital assets that often get overlooked:

Digital Financial Accounts (Venmo, CashApp and PayPal)

Digital financial accounts are the same as bank accounts. Unlike cryptocurrency, they do have a centralized bank behind them which can be subpoenaed, and the money held in them is in U.S. Dollars. However, many people still forget to disclose their Venmo, CashApp and PayPal accounts as part of their divorce discovery. If you or your spouse frequently get reimbursed by friends or family for shared expenses, or run a hobby business, these accounts could contain a significant amount of money that is easy to overlook.

NFTs (Non-Fungible Tokens)

There is also a new trend of purchasing digital non-fungible tokens, called NFTs. An NFT is the formal ownership of a digital asset available on the internet. It can be compared to owning an original work of art for which prints are readily available. Some NFTs are worth a substantial amount of money. However, they create another challenge for divorce courts because, by definition, they can’t be divided. You can’t receive one half of a digital work of art. Thus, the only option for a divorce involving an NFT is to award the digital asset to one party while giving the other party a fair share of the equitable value.

Get Help Dividing Digital Assets in Your Pennsylvania Divorce

If you suspect your spouse is hiding assets in cryptocurrency accounts, a knowledgeable divorce attorney can advise you of your legal rights and options. At Berman & Associates, we are committed to providing skillful counsel and reliable representation for a wide variety of divorce matters, including uncovering hidden assets. Contact us today to schedule a consultation at our Media office.