Cryptocurrency Assets In Divorce Financial Settlements

Blockchain technology has revolutionized much more than just the world of sending and receiving monetary transactions. They estimated hundreds of millions of people around the world to own some form of cryptocurrency. But even if you don’t own any crypto, blockchain can have a significant impact on your life.

Cryptocurrency has increasingly become a factor in divorce settlements in recent times. Bitcoin, Ethereum, and other types of cryptocurrency continue to gain mainstream acceptance. Many people now use cryptocurrency as a form of exchange, a store of value, and an asset class. The value of the cryptocurrency market surpassed a record $2 trillion in April.

What if the spouse you’re divorcing holds crypto assets?

Just as with cash in the bank or property, cryptocurrency is an asset that will have to be accounted within the separation and divorce settlement. Divorce laws in Canada require that all debts and assets, personal or joint-owned, to be accounted for and potentially equalized. This means that the identification, valuation, and division of cryptocurrency as an asset in divorce cases will become more and more commonplace.

The problem, however, is that, except for a few, most people, including family lawyers, know very little about cryptocurrency. Some people assume it is unnecessary to disclose your crypto assets in a divorce proceeding.

Some even advise that you invest in crypto assets if you intend to hide assets from your spouse. These assumptions are misplaced in the context of laws and existing realities. If you are a spouse with cryptocurrency assets, you should acquaint yourself with the correct positions.

If you are a spouse without crypto assets, you also need to have a working knowledge of what to look for when divorcing a spouse who may have a cryptocurrency investment. Don’t think for a moment having a lawyer investigate and uncover the crypto assets is the right approach. The financial cost and damage to your parenting relationships will be extensive.

In Canada, all debts and assets either personally or jointly-owned are legally required to be shared/equalized during the divorce financial settlement. Money held on bank accounts or traditional assets such as stocks don’t usually pose any problems, but what if your spouse is an avid blockchain enthusiast, heavily invested in Bitcoin or other cryptocurrencies?

Many cryptocurrencies market themselves as being anonymous, private, and impossible to track. Fortunately, that is not actually the case. All of the popular cryptocurrencies such as Bitcoin and Ethereum are fully transparent. While tracking crypto assets might be expensive due to the novelty of blockchain technology, it is far from impossible.

The specialized area of forensics dealing with blockchain and cryptocurrencies is called “on-chain analysis”. Employing services of companies specializing in this field can cost you a few thousand dollars, but if your spouse is holding assets worth millions, it can very well be worth it.

However, the situation becomes much worse if your spouse happens to own a certain type of cryptocurrencies known as “privacy coins” such as Monero (XMR), Zcash (ZEC) or Dash (DASH). Due to extremely advanced cryptographic technology, privacy coins are extremely hard to track even by law enforcement agencies, and in most cases, it’s impossible to prove someone’s ownership of privacy-focused digital assets.

Fortunately, most blockchain enthusiasts are far from being discrete. Have you ever heard your spouse talking about Bitcoin, blockchain or crypto? In that case, the likeliness of them owning some form of cryptocurrency is more likely than you think.

However, most retail crypto investors only own very little cryptocurrency. Perhaps your spouse has only invested a few hundred dollars in digital assets – in that case, trying to track the assets might be futile as the cost of on-chain analysis will likely surpass the total value of the digital assets in question.

But what if your spouse talked about Bitcoin and crypto a lot, and then started to buy luxury goods such as expensive cars or jewelry? In that case, you can be almost 100% sure that they made a fortune with blockchain technology, and employing the services of a specialized on-chain analysis company might be worth the effort.

Of course, there’s another possibility which is much more likely: your spouse might be obsessed with blockchain and crypto, but made bad decisions and invested in wrong cryptocurrencies along the way. Remember that most crypto enthusiasts are not millionaires, and they only dream of becoming millionaires one day.

The first most crucial step is to establish that cryptocurrency exists. If there is enough concrete evidence, all is well and good. However, cryptocurrency, by its very nature, is pseudo-anonymous. This makes things difficult.

The court might require reasonable suspicion of ownership to order further investigation. You could find circumstantial evidence like prior references, unexplained transfers, investments, or another spending on financial statements.

If the cryptocurrency owner uses an exchange, it may be possible to subpoena some information from a third party. If the funds are not on an exchange, search warrants can be conducted to find the wallet’s private keys and seed phrases. Device forensics can be performed as well if needed.

A judge may end up ordering the freezing or forfeiture of other assets in place of cryptocurrency. However, this is largely untested in courts.

One of the tricky aspects of cryptocurrency is nailing down the value. Cryptocurrency worth $100,000 may drop to $10,000 or rise to $1,000,000 during the . If you are to accept coins in your settlement, you need to research the type of cryptocurrency to understand its value and stability better.

You can also prepare for this by adding some type of volatility formula into the divorce contract. For example, if the value changes by “X” percent, there may be a corresponding “Y” percent change in how you divvy other assets. You will need to obtain a valuation at every stage of your divorce process so that you both know what you are dealing with.