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How cryptocurrency complicates divorce

On Behalf of | Jun 9, 2021 | Property division

Cryptocurrency is moving into the mainstream. Bitcoin, the best-known digital currency, generates regular headlines as it surges in value, plummets and then soars again. Cryptocurrencies such as Ethereum, Dogecoin and Tether are also beginning to work their way into the national consciousness.

The word “cryptocurrency” derives from the encryption algorithms used to secure digital assets. Encryption makes it nearly impossible to counterfeit or “double spend” (use the same digital token twice).

Advantages, disadvantages

One of cryptocurrency’s biggest advantages is it makes it easier for funds to be transferred securely and directly between two parties without involving a credit card company or bank. That means an individual or business can transfer funds to another individual or business without paying costly fees to a financial institution.

The anonymity of crypto transactions makes them a popular choice among people engaged in illegal activities involving ransomware, money laundering, drug trafficking, tax evasion and more.

One more illicit act

The digital currencies can also be part of another unlawful activity: concealing assets in a divorce in California.

Many people are increasingly aware that a virtual cryptocurrency such as Bitcoin can become a point of contention in a property division dispute in divorce.

Let’s be clear: It’s illegal to hide assets in a divorce in any way.

Community and separate property

Because California is a community property state, the law requires all income earned to be split evenly between the spouses. That includes salaries, investment earnings, income from business holdings and items purchased with funds earned during the marriage.

Of course, not all assets are considered community property. Examples of separate property that belongs solely to one spouse include property owned by a spouse prior to marriage, inheritance, property acquired with one spouse’s separate funds and in that spouse’s name and property designated as separate in a prenuptial agreement, among others.

Hiding assets

Sometimes when a spouse believes he or she is entitled to more than half of the marital assets, they’re tempted to hide assets.

Family law attorneys have been quoted in numerous news articles, confirming that cryptocurrency is increasingly popping up on the radar of spouses eager to mask their wealth in divorce.

Uncovering clandestine crypto

However, even crypto can be tracked. Bank statements can be analyzed to learn when payments were made to companies dealing in digital currency or to crypto exchanges where money is traded for it.

When a spouse tries to hide income by receiving compensation in crypto, the value of the payment can be determined by examining financial records held by the payor.

There’s considerable risk in hiding wealth in crypto – large sums can be wiped out in short order whenever they take a steep dive. Plus, when a spouse is caught trying to hide wealth, there can be painful civil or criminal consequences.

If you suspect your spouse of hiding assets, speak with an experienced family law attorney about how California’s financial disclosure law can be used to protect your interests.