What Happens to Your Bitcoin After a Divorce?

What Happens to Your Bitcoin After a Divorce

With the increasing popularity of cryptocurrency, more and more spouses who are headed for divorce make the decision to hide these digital assets to avoid having to divide them in their divorce settlement. The trouble is, tracking down Bitcoin is not easy.

More than 20 million Americans currently own cryptocurrency and Bitcoin, and it is expected that issues surrounding the division of Bitcoin and other digital assets will continue to rise. For this reason, it may be in your best interests to prepare yourself for what happens to your Bitcoin in the event of a divorce in California.

What is Bitcoin and How Does it Affect Divorce?

It is more common than you might think for one spouse to have no idea what Bitcoin is, and the other to have invested considerably in Bitcoin. Here is more about what Bitcoin is and how it could affect your divorce settlement.

Bitcoin is a type of digital currency that is a little over a decade old. It is a type of cryptocurrency because cryptography keeps it secure. Bitcoin is not physical, and balances are kept on a public ledger that anyone has access to. However, each balance is encrypted. 

Bitcoin is not issued or backed by the government or any major banks. It is not legal tender in most parts of the world, but Bitcoin has become increasingly popular in recent years due to the promise of lower transaction fees and because it is operated by a decentralized authority.

Issues With Bitcoin and How it Should Be Divided in Divorce Cases 

Since Bitcoin and cryptocurrency are so complex, it may be in your best interest to obtain a divorce attorney who has experience in dealing with digital currency, crypto, and Bitcoin issues in divorce. 

If your spouse purchased a bitcoin while you were married, then the bitcoin may be considered marital property and subject to the state of California community property laws under CA Fam Code § 760.

Here, all marital debts, property, and assets will be divided equally, and each spouse is entitled to half of the marital assets. But this can become complicated quickly when Bitcoin and digital currency are involved. This is, in part, because it is difficult to determine the value of bitcoin, as the value can rise or drop considerably throughout the divorce process due to market volatility.

Your attorney may advise adding a volatility formula into your divorce contract which will allow the way you divide your assets to change in correlation to changes in the value of your Bitcoin due to volatility.

Tax Implications of Bitcoin in Your Divorce 

You should also consider the tax implications of purchasing Bitcoin. If you or your spouse purchased Bitcoin when it first became popular five or ten years ago, and have seen substantial growth, you will be subject to long-term capital gain taxes if you sell as part of your divorce settlement. This is something both spouses should take into consideration as you negotiate the terms of your divorce settlement.

When Bitcoin is involved, there are several tax issues you have to concern yourself with. If one spouse failed to report income brought on through Bitcoin, cryptocurrency, or other types of digital currency, the IRS will likely catch up at some point and may issue tax penalties. 

You can expect the Treasury Department to continue to monitor cryptocurrency and Bitcoin reporting after issues involving digital currency have become increasingly common in divorce cases.

Uncovering Hidden Bitcoin

Another major issue spouses have with bitcoin during their divorce is hidden cryptocurrency and Bitcoin. It is more common than you might think for some spouses to have no idea that their spouse has been investing in Bitcoin. Others have suspected that their spouse was using hidden cryptocurrency income based on sudden changes to their lifestyle.

A good example could be a couple who was struggling to make ends meet. If one spouse suddenly has enough money to cover the cost of a pricey, brand-new car without explanation, this may be a sign that your spouse has significant amounts of hidden Bitcoin or crypto.

Your attorney will likely ask you questions to determine whether your spouse may be hiding digital assets or Bitcoin. If there are concerns that your spouse may be hiding Bitcoin, your lawyer could file a subpoena to access your spouse’s electronic devices to determine whether any secret cryptocurrency accounts exist. We will also carefully come through any email records, bank statements, and tax returns to determine whether hidden Bitcoin exists.

These days, Bitcoin may be easier to track than some newer types of cryptocurrency such as manero, verge, or grin, for example. But that does not mean it will not be costly. Before you decide whether tracking down hidden bitcoin is in your best interest, your attorney will need to carefully examine the evidence in your case to determine whether uncovering hidden Bitcoin is going to outweigh the costs of your search for hidden crypto.

How to Protect Your Finances In the Event of Divorce

It is important that you take steps to protect your finances, even if your marriage is not yet on the verge of collapse. If you make less money than your spouse, it is important that you start planning ahead. It may be a good idea to start taking an inventory of your marital assets and keeping a close eye on your banking accounts.

If you notice signs that money is missing, or if you know that cryptocurrency exists, and your spouse denied you access to the accounts, then this may be a serious cause for concern. Your spouse may be cheating, suffering from a gambling addiction, or spending all of your hard-earned money on Bitcoin.

If you keep better track of your financial records, and can present your attorney with bank statements and other account information that shows hidden funds, account information, specific Bitcoin purchases, and more, this information could prove invaluable in your divorce settlement.

Get Help From a Divorce Lawyer in California 

When your marriage has come to an end, and you need to divide your marital property and assets, this includes your digital assets, including Bitcoin and cryptocurrency. 

If you suspect that your spouse may be attempting to hide Bitcoin or other digital assets, or if you have been accused of hiding Bitcoin or cryptocurrency, get an experienced California divorce attorney at Pedrick Law to take on your case.

Schedule your initial consultation when you complete our online contact form. Or, give our office a call at 949-438-3886 to get started on your case today.

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