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Battling Over Bitcoin & Other Cryptocurrency Issues In Divorce

Battling Over Bitcoin & Other Cryptocurrency Issues In Divorce

In almost every divorce case, lawyers know that one of the most complicated aspects can be the equitable distribution of assets and debts. As technology and sophistication have advanced, so has the nature of certain assets – in particular, cryptocurrency. Many lawyers are unfamiliar with cryptocurrency, including how to track, value, or divide it. Due to its nature, a spouse could use cyptocurrency to hide assets during the process. Today’s family lawyer must have an idea of what to look for in a dissolution case where one or both parties’ own cryptocurrency.

What is Cryptocurrency?

While there are dozens upon dozens of cryptocurrencies, at their core, they can be viewed as digital-only (or virtual) currency. Most cryptocurrencies are referred to as “coins” or “tokens,” with the value of one coin being worth a certain amount of money. It is possible to own small percentages of a single coin, like having 32 cents of one dollar. Cryptocurrencies exist entirely online – they are not tied to any banks, brokerages, or governments. Cryptocurrency can be transferred almost anywhere in the world without regulations or fees. This ease of use is making cryptocurrency a growing industry, with more and more people choosing to hold assets virtually, rather than in cash, banks, or stocks.

Cryptocurrency transactions are stored and recorded on virtual databases often known as “blockchains.” While the blockchains themselves are usually public access, it is impossible to track down who owns a certain number / coin / token on the blockchain without a private key. The key is the password allowing the owner of the token to spend it or use it. Keys can be complex alphanumeric strings, and most users store their keys on another electronic program. If the key is lost, the cryptocurrency can no longer be accessed by anyone. As cryptocurrency has gained value and popularity, some mainstream stock market applications, like Robin Hood, have opened their platforms to cryptocurrency trading, making transactions somewhat easier to track.

Cryptocurrency Issues in Divorce Cases

The ease of use and portability of cryptocurrency also make it very problematic in a dissolution. Because these funds are usually not held by any bank or brokerage, it is easier for a spouse to disguise the asset. And since some business – especially those that operate in virtual space – now have the capability to accept cryptocurrency as payment, if a spouse owns a business, they might choose not to declare certain payments, similar to the old method of secreting away some cash.
An even more problematic issue can be the valuation of cryptocurrency. In typical Oregon dissolution cases, an asset, such as a bank account, a stock, a car, or another asset can be readily valued. Most times, the parties agree (or the court orders) that an asset be assigned its value on a certain date. While this can be a bit tricky with stocks, market fluctuations are usually not so severe as to completely disrupt the valuation of that kind of asset. Not so with cryptocurrency. First off, unlike stock markets, cryptocurrency markets never close, and the value can change at any hour of any day. Additionally, the values often soar wildly. For example, the Dogecoin began 2021 valued at less than one cent per coin. It recently crested to a high value of 69 cents per coin, before settling down in the mid-50’s. Thus, a $1,000 investment in Dogecoin on January 1, 2021, would have been worth close to $121,000 at the peak, and just a few days later, closer to $90,000. It is possible for such swings to happen in a matter of hours, or even minutes. Unlike more traditional assets, determining the proper valuation for cryptocurrency is extremely complex.

Dividing Cryptocurrency in Divorce

Family lawyers dealing with cases must be alert for the above issues. At the onset, if the lawyer suspects the other side is in possession of any cryptocurrency, the lawyer should make a specific discovery demand for any records or financial transactions involving cryptocurrency. If the other spouse holds cryptocurrency on a traditional stock-trading application, records may be easier to come by. If the spouse holds the cryptocurrency through an exchange, finding and obtaining records may be much more difficult. Next, the lawyer should also pay close attention to financial statements provided. The purchase of the cryptocurrency must come from somewhere, so unexplained withdrawals or deposits may be an indication of cryptocurrency being purchased or redeemed.

For the lawyer whose client possesses the cryptocurrency, the client must understand that honesty is required. In the heat of an especially contentious divorce, it is not a stretch to think that a spouse may attempt to conceal a difficult-to-trace asset. The client should always be advised that Oregon law allows – and in fact requires – the court to reopen the case if the opposing party alleges that undeclared or otherwise hidden “significant assets” existed at the time of entry of judgment. ORS 107.452. In addition, attorney fees may be authorized if this statute is used to reopen a case for fraud or deception.

Perhaps the most difficult question is how to value the cryptocurrency since it can fluctuate so drastically in a short while. No case law currently exists on valuation of volatile cryptocurrency, and until some is created, we should be guided by general principles. A financial expert might be able to provide a reasonable valuation with a “smoothed rolling average.” Such a valuation considers the peaks and valleys over a given time and attempts to plot the cryptocurrency’s value, giving an approximation of overall value at a certain time. Of course, the parameters of this valuation will be subject to argument from both sides. Until a higher court provides guidance on this area, it may be difficult for trial courts to adopt uniform positions on division of cryptocurrency. As a general practice suggestion, it may be better to resolve this piece of asset division ahead of time through negotiation and mediation, even if other matters persist for trial.

We Can help.

For 40 years, Gevurtz Menashe has supported families through some of their toughest times—including helping clients establish guardianships and conservatorships. If you are interested in learning more, please call our office at (503) 227-1515 or contact us online, anytime.  

Authored by Edward Kroll, Of Counsel Attorney at Gevurtz Menashe. Edward is a member of the Oregon State Bar and focuses his practice exclusively on family law issues such as divorce, parenting and custody issues, child and spousal support, relationships agreements, appeals and more.
*This is general information only and not meant to provide specific legal advice. *