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Cryptocurrency & Divorce

Post Authored By: Shannon Luschen

The recent buzz around Dogecoin (the cryptocurrency that has risen more than 26,000% over the last 6 months ) has brought up important and interesting considerations about cryptocurrency in the divorce context.

So, what is cryptocurrency?

Cryptocurrencies, like Bitcoin, Ethereum and Dogecoin, are decentralized, digital forms of currency based on blockchain technology. Blockchains are public ledgers of every transaction since the very inception of that cryptocurrency. They are autonomous forms of currency in that they secured by an array of computers around that world, rather than being backed by a central authority or government. In order to access your cryptocurrencies, individuals have a “private key” – which is essentially the password to access your assets. Without your “key,” it is virtually impossible for an individual to access their cryptocurrency. There are various ways to store a private key, including in a third-party exchange (i.e. Coinbase) or in a software wallet that is downloaded onto one’s computer or smartphone. Cryptocurrencies have become increasingly popular over the last few years due to their secure and private nature. They are also becoming more and more mainstream as influential individuals (hello Elon Musk) start to hype up (or downplay) certain cryptocurrencies in social media. This exposure has caused the prices of certain cryptocurrencies to skyrocket in recent months.

With these features in mind, cryptocurrency may be ripe for misuse in divorce. Specifically, how can a spouse find out if her spouse holds any cryptocurrency? If so, how can that spouse ensure that her spouse is not hiding marital assets through cryptocurrency holdings?

The key is to be transparent and thorough during the discovery phase. If a spouse has reason to suspect that her spouse holds cryptocurrency or is even hiding marital assets through cryptocurrency, then he or she must ensure that any and all discovery requests contain narrowly tailored language pertaining to the disclosure of all cryptocurrencies. Since cryptocurrencies are a relatively new and emerging asset, attorneys must be aware of what to look for; what to ask for; and how to value and divide said coins when they are disclosed. Retaining an expert early on in the case who can assist in crafting appropriate language for discovery requests may be key in ensuring that all cryptocurrency assets are disclosed for property settlement purposes.

Even if discovery requests are sent during divorce proceedings with the appropriate cryptocurrency language, spouses can still “hide” their cryptocurrency if they are so motivated. If an attorney suspects this, he or she can take further steps to uncover the information, including the following:

  • Carefully reviewing bank records to see if there have been any cryptocurrency transactions and/or purchases through an online exchange (i.e. Coinbase);
  • Reviewing tax returns (on the 2020 1040 form, for example, there is a box that must be checked if that individual received, sold, sent, exchanged or otherwise acquired any financial interest in virtual currency); and/or
  • Subpoenaing popular online exchanges, like Coinbase, Binance and Kraken.

While cryptocurrencies have presented new and interesting challenges for practitioners and divorcing spouses, it is important to be aware of the nuances and features of cryptocurrency so that it can be properly identified and dealt with during a divorce. Ultimately, attorneys must remain vigilant and thorough during discovery so that the eventual division of marital assets for their client is just and fair.

About The Author:

Shannon Luschen is an associate with Feinberg Sharma in Chicago, which focuses exclusively on family law matters. Shannon received her undergraduate degree at the University of Wisconsin-Madison undergrad and her J.D. at Chicago-Kent College of Law, where she graduated cum laude.

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