Bitcoin and Divorce

In Illinois, incident to resolving a divorce case, all assets and liabilities are required to be identified, valued, and allocated between the parties equitably. Although often resulting in a 50/50 division of marital assets, “equitable” does not necessarily mean “equal.” Prior to either reaching an agreed upon division of assets, or proceeding to trial on the issues of property division, all assets must first be identified and then where possible, valued. With the rise of the digital age, issues of valuation have expanded to the world of cryptocurrencies such as Bitcoin. Valuation, however, is not the only issue involving bitcoin and divorce. Today, divorcing parties and their attorneys must be diligent in approaching bitcoin (and all other cryptocurrencies for that matter) during divorce.

While identification of the existence of bitcoin or other cryptocurrency is the starting place, one must first understand what bitcoin is. Bitcoin is an electronic currency that allows users to transfer funds directly to one another through a peer-to-peer system without the need for a middle-man, like a bank or Western Union. As set forth in the Wall Street Journal: 

“Bitcoin, despite its name, isn’t money. It does not have governmental backing. According to the Journal, its extreme price volatility significantly diminishes its usefulness as a reliable unit of account or effective means of payments. Bitcoin might, however, serve as a sustainable store of value, like gold.”

If Bitcoin is not money, then why is there so much emphasis on its identification and valuation in divorce?

Michael Leon, a financial and cryptocurrency expert with Athena Investor Services stated:

“For divorcing couples, there are two main challenges in dealing with a spouse that might have purchased bitcoin or other cryptocurrencies. The first is dealing with a spouse who is determined to use bitcoin to hide assets, much the same way as a spouse might have used an overseas bank account to hide assets in divorce years ago.”

The issues of identification of assets, particularly ones contained solely in a digital platform, require additional detail and attention by divorce attorneys. Because there are no middle-men required (like a bank, government entity, or wire transfer facility) in the transfer and use of bitcoin, obtaining a paper trail can be difficult. Unlike transfers in and out of a bank account for which one can request copies of statements, bitcoin transfers occur primarily via the web or in cash. Further, the peer-to-peer trading concept of bitcoin, although easy for the user, proves extremely difficult for purposes of identification. Regardless, there a few necessary steps divorce attorneys can take when dealing with bitcoin.