How to address cryptocurrencies during a divorce

By Garrett Horvath and Liam Cummings March 27, 201827 March 2018

How to address cryptocurrencies during a divorce

 

Bitcoin and other cryptocurrencies are a hot ticket right now. Originally a way for underground anonymous transactions, digital currencies have picked up steam after investors and speculators found they could double their money quickly (or lose it just as fast). The most well-known cryptocurrency, Bitcoin, peaked at over $24,000 CAD in December and is currently sitting at roughly $ 10,400.

Where Bitcoin is headed is anyone’s guess, but for now at least there is clearly value in it and other digital currencies. And separating couples have taken notice, which is why divorce lawyers need to get up to speed on what  to do when their client or the opposing party has purchased cryptocurrency during the relationship.

A quick primer: Bitcoin is a decentralized digital currency. No government controls it or can produce it. No more than 21 million Bitcoin will ever be available. It is owned by anyone who wants to purchase it and can be bought through a variety of exchanges online or through Bitcoin ATMs in person. Coins can be placed into cold storage, removing the coins from any web server or computer. When this happens, a code is provided which can be stored on a USB key or printed onto paper. Whoever has the code can access or transfer the coins.

Several recent cases in the UK involve husbands that had invested early in cryptocurrencies which exploded in value. Because Bitcoin’s value went up by 2000 per cent during 2017, a marginal investment of $20,000 in 2016 would have been worth over $400,000 at the peak. The courts have also struggled with how to value an asset that is so volatile that its worth fluctuates so much from week to week.

A disreputable spouse may hide their liquid assets in cryptocurrency anticipating a separation or forget to inform their significant other that they had purchased Bitcoin during the relationship. If they were early investors, their Bitcoin wallets could be substantial. The rapper 50 Cent accepted Bitcoin to purchase an album in 2014 and it was reported (but later denied) that he had $8 million worth in a forgotten account.

How does a divorce lawyer deal with this new reality? Start by asking your client if they have ever purchased Bitcoin or if their spouse has. If you are questioning the opposing party, ask them if they own any Bitcoin or have ever purchased any. If there is any evidence that a party has purchased Bitcoin, seek an undertaking that they provide you with a link to view their Bitcoin wallet. Reconcile any bank statements against transactions online. A colleague of mine has generously provided his own Bitcoin wallet so that the rest of us can gain a better understanding of what information is available.

Instead of a name, this account is identified with a code beginning with “3Auxm”. Most importantly, you can see that this specific wallet currently holds 0 Bitcoin but that a total of 55 Bitcoin passed through the wallet during its lifetime.

Cryptocurrency may be a high-tech method of burying cash in your back yard, but as lawyers, we need to acknowledge and understand new technology to ensure we are providing the best advice possible.

Garrett Horvath is a family lawyer with Kahane Law in Calgary, Alberta. Liam Cummings is a cryptocurrency consultant in Calgary, Alberta.

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