In just a few short years, cryptocurrency has moved from the fringes of the technology and finance worlds into the mainstream. According to a Pew Research Poll conducted in November 2021:
- 86% of Americans had heard “at least a little” about cryptocurrencies,
- 24% claimed to know “a lot” about them, and
- 16% had personally invested or traded in them
Among those who had invested or traded cryptocurrencies, the largest cohort was men between the ages of 18 and 29, of whom 31% had personal experience. All of those statistics were significantly larger than what Pew found in its study that was done back in 2015.
If you or your spouse own crypto assets (or if you suspect your spouse does, but you aren’t sure), what should you do in the event of a divorce? How do you go about finding the assets, valuing them, and dividing them?
The first thing you should do is hire an attorney who has personal, first-hand experience investing or trading in cryptocurrency. As the Pew Research Poll cited above shows, while a large majority of people have heard a little about Bitcoin, Ethereum, Solana, NFT’s (non-fungible tokens) and others, only a small minority of those people have actually dealt with them. The concepts, terminology, and mechanisms for buying, selling, and trading are completely foreign to most Americans, and that includes most divorce lawyers. At Kollias, P.C., we have not only handled numerous cases involving crypto assets, but our firm has also accepted payment in Bitcoin and other cryptocurrencies since 2019.
Second, it is clear that divorcing spouses are required to disclose ownership of crypto assets on their financial affidavits, whether as a “cash equivalent,” “investment,” a “collectible,” or “other personal property valued in excess of $500.” Having said that, these assets wouldn’t be called “crypto” if people didn’t assume that they could be easily hidden, and to a certain extent they can be. However, crypto assets purchased with cash can be tracked and found. An attorney experienced in dealing with cryptocurrencies will know where to look and how to find them.
If you suspect your spouse has been investing in cryptocurrency, you attorney should issue discovery requests bluntly asking for disclosure all relevant information. An knowledgeable attorney will know the right questions to ask, and how to ask them.
If your spouse is less than forthcoming in his or her responses to the discovery requests, the first place to begin looking for evidence of crypto assets is in their bank and credit card statements. Cryptocurrency can be purchased on any of a number of exchanges, such as Binance, Coinbase, Kraken, Gemini, FTX, or eToro. Additionally, it can be purchased through Pay Pal, Venmo, Cash App, and Robinhood. Your spouse’s bank or credit card statements would show transactions indicating cash going to or from one of those exchanges or applications. Each of them is subject to the subpoena power of the Illinois courts, and will disclose account information if properly served. That information will show what was bought, what was sold, and what was transferred.
With regard to cryptocurrency transferred, it can be a little more challenging to find out where the “money” went. Transfer ledgers will only show the recipient’s wallet address, not the name of the transferee. Those addresses are long strings of letters and numbers, often several dozen characters long. Finding out who that wallet address belongs to will tell you whether your spouse transferred the assets to a third party, or just to a different wallet that he or she controls. There are websites that track all transactions to and from a particular address, such as etherscan.io for Ethereum and solanabeach.io for Solana. There are also services that will track transactions for a fee.
Things get a little trickier if the assets have been transferred from an exchange account (referred to as a “hot wallet,” meaning it’s online) to a “cold wallet.” A cold wallet is a storage device, such as Ledger Nano or Trezor Model T, which is about the size of a flash drive and connects to a computer through a USB port. When tracking assets, a knowledgeable attorney will know the correct procedure to require your spouse to produce the cold wallet for inspection, and know the right questions to ask in order to access the information contained on it.
From a cold wallet, there are countless decentralized exchanges which can be accessed, often containing the word “swap” in their name, such as UniSwap, SushiSwap, ParaSwap, PancakeSwap, etc. There are others like Marinade and Orca, which defy the naming convention. Transactions that take place on a decentralized exchange may very well be impossible to track. The good news, however, is that it may not be necessary to track them. For purposes of a divorce case, it is often times sufficient to show that your spouse transferred a specific quantity of crypto assets to an unknown address on a specific date and time, and shift the burden to them to show where the money went, as part of a dissipation claim or otherwise. As long as there are sufficient marital assets to offset the value of the crypto transfer, you may be able to make a persuasive case that you are entitled to a larger share of those to offset the value of the “missing” cryptocurrency. If there aren’t, then you may be able to ask for a money judgment and an order for payment.
Valuing cryptocurrency is often as simple as looking up the current price on any of the exchanges listed above. They do fluctuate wildly, so setting a value for court purposes can be like trying to hit a moving target. Dividing the assets in kind is a good technique to eliminate the valuation question, as one half (or whatever the particulars of the division may be) of the currencies can simply be transferred from the wallet of one spouse to the wallet of the other.
If you have questions about cryptocurrency in your divorce case, please contact us for a free 30-minute consultation.