How is Crypto Treated in Family Law Proceedings?

How is crypto treated in family law proceedings? People get engaged with crypto for several reasons. Some of these reasons are good and some are bad.

While most of them trade crypto with an intention to make profits from the price differences which is a commonplace in crypto, there are lots of bad actors who use crypto, especially Bitcoin, to funds criminal activities such as terrorism.

There are also a few others whose intentions are not all that bad but they still want to hide their Bitcoin and other crypto coins to reduce, if not avoid, legal obligations in terms of support.

However, according to the law, crypto is considered to be a property rather than a currency and the income and gains generated from it are not only taxable but are also liable to be considered for determining support and alimony in case of divorce or breakups.

It is true that Bitcoin and crypto transactions are anonymous and decentralized in nature but still when it comes to breakups and Bitcoin, everything should be clearly mentioned and informed by the parties involved to the court.

This will have a significant impact in the family law proceedings.

Here is an article that will tell you how crypto is treated in family law proceedings whether it is for paying child support, alimony to the spouse, or any other types of family disputes involving asset division and distribution.

Ideally, treatment of crypto in family law proceedings is a complex subject and it needs a lot of expertise to ensure that none of the parties involved is deprived and the judgment is harsh on any one of them.

This article deals with all the issues related to family law which, when known, will make you more knowledgeable, and perhaps more considerate.

How is Cryptocurrency Treated in the Family Law Proceedings?

How is Crypto Treated in Family Law Proceedings

After being in existence for more than a decade now, cryptocurrencies surely do not need any introduction.

It is not even needed to talk about its potential which, considering the subject matter of this particular article, will be irrelevant.

Well, cryptocurrencies as such have made the headlines time and again and have often left people surprised at what it can do to the existing financial system.

Considering it to be a broader phenomenon and an indicative asset for the future of money, more and more people got involved with crypto trading and investing.

Chances are, you have also invested quite an amount of money in it and amassed a lot of crypto coins by now.

Now, god forbid, if a situation comes to breakups or divorce, you will have to pay alimony to your spouse as well as child support as applicable.

You cannot deny it, and if you do, the court will intervene and make a judgment according to the family law.

Now, the question is how Bitcoin or crypto will be treated by the judge in such specific legal proceedings.

This is where the issues related to family law come in.

These issues are significant and are created by crypto, the novel asset type, and the courts have already started taking it seriously during family law proceedings.

There are many reasons people use crypto to reduce or get out of paying alimony and child support.

One specific reason is that crypto coins, especially Bitcoin, are in rage now and its value is increasing in leaps and bounds and thereby have made the early adopters multi-millionaires by now.

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People do not want to lose this opportunity to be wealthy by simply transferring their crypto holdings to their spouses.

It is not only with Bitcoin but for all other types of crypto coins such as Ether, Cardano, Tether and their likes.

Fortunately or unfortunately, crypto therefore is a popular choice for spouses to get hold of or hide them in a divorce, as the case may be.

The family law proceedings eventually decide who gets the Bitcoin after the divorce and how much.

However, this is not easy due to the fact that there are lots of issues in the family law that need to be considered and resolved in the first place.

Issues with Family Law

First of all, the issues in family law are created by crypto due to its novelty and unique decentralized structure.

There is no scope of any doubt left by the original creator of Bitcoin, Satoshi Nakamoto, that Bitcoin, and all other crypto coins that came into existence after that, were designed and created specifically to evade governmental regulations.

It was meant to facilitate P2P payments without the need of any intermediaries.

However, all these may help the crypto traders and investors (and also the bad actors to support their illegal transactions), but at the same time it has also created a lot of interesting issues for family law proceedings.

With this regard, quite a few prominent judges and eminent attorneys point out that crypto is an emerging source of wealth that is intangible and evolving which leaves no other alternatives open for the courts but to grapple it more frequently in the future.

It is all due to the different types of issues that crypto creates.

One of the most significant factors of crypto that creates a significant issue for family law is its anonymity in transactions.

It is almost impossible to identify the owner of Bitcoin or other crypto coins without knowing the unique private keys or pass codes of the wallet of the owner.

If a party to a legal proceeding is dishonest, it is very easy for him or her to hide his or her virtual assets.

It is for this reason several courts have now ordered all payers of child support and alimony to disclose their crypto assets and earnings.

This type of mandatory disclosure however comes with its characteristic issues as well.

For example, such types of disclosures can be really very sensitive.

Add to it, it is also required to be very cautious while making such a disclosure so that the hackers do not get access to these disclosed accounts.

That is why such disclosures are required to be made in redacted form.

Then, it can be discovered at a later stage of the process that a party to the proceedings was and still is hiding his or her crypto assets.

In such situations the crypto accounts of the party cannot be accessed without the disclosure of the pass codes due to its encrypted nature.

Also, if and when a party feels that he or she is being suspected of his or her crypto holdings, the coins can be transferred by him or her quickly, literally at a click of a button, and easily to another new account at any point of time before these coins can be seized.

Apart from that, there is another significant issue faced while calculating the amount of support based on crypto due to its extreme volatile nature.

This high volatility results in frequent and wild price swings which creates a lot of problems in the evaluation process.

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This does not allow dividing the assets fairly and accurately when it comes to marital breakdown.

The complications created by the price swings do not allow determining the fair value of the crypto coin on the ‘valuation date’ of a separation or a divorce.

Then, there is the magnanimous number of crypto coins available out there.

Typically, people often invest in more than a couple of these coins in order to diversify their portfolio and reduce the risk factors inherent with such investments.

This calls for a specialized valuator who is accustomed with the types and prices of different crypto coins and may help in proper evaluation of the assets.

When the evaluating process is completed, crypto will be treated just like any other type of regular investments for the purpose of asset division.

This means that both the parties to a divorce will have to split the profits made or losses incurred from crypto between them.

Finally, crypto can offer a lot of avenues to generate income apart from simple trading and investing.

If income is generated through these means, such as crypto mining, it will also affect the support obligation of the income earner.

Therefore, in the family law proceedings the value generated through such processes will also be added to the income of the support payer.

Similarly, sale or cash out of crypto coins at any point of time will also create an income for the support payer and his or her support obligations and will be therefore included in the valuation process during family law proceedings.

Therefore, in order to keep pace with the ever-evolving crypto space, family law should also evolve at the same pace, which it does for sure.

That is why you are advised to do your due diligence and research beforehand to know your support obligations clearly.

Hiding Assets

When it comes to divorce cases, it is very easy to hide assets to reduce the amount of alimony using Bitcoin, and also other types of crypto coins.

Finance affects nearly every aspect of family law proceedings or a divorce or separation case.

This can have quite a significant effect especially when such cases involve high net worth.

Typically, in family law proceedings, the settlement achieved, whether it is through in-court trials or out of the court negotiations, the agreement reached on property division typically depends on common factors such as:

  • Income
  • Assets and
  • Liabilities of each of the parties to a divorce.

All these financial circumstances are considered for spousal support and child support as well during the evaluation process.

If a spouse wants to sway the outcome of the proceedings of divorce in his or her way he or she may underreport or suppress information about their assets in order to ‘hide’ them.

They may even transfer the crypto assets to another wallet of another party.

Crypto is increasingly used to hide wealth in divorce proceedings simply because it does not reflect in the bank statement and cannot be traced.

Therefore, it pays if you know the signs that will tell clearly whether or not your spouse is hiding assets during a divorce case.

Yes, there are some specific clues that may indicate financial deception or an intention to hide assets by your spouse.

It includes:

  • Refusing you to let use his or her computer, laptop or any other similar electronics where documents can be stored
  • Living a lavish lifestyle in spite of complaining of financial hardship
  • Getting upset or avoiding any discussions related to financial issues raised by you
  • Buying expensive products such as cars and jewelry even though there is no significant increase in income and
  • Hiding financial papers such as tax returns.
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If you are sure about it you should report it to your divorce lawyer.

The skilled lawyer will help you out in such situations to find clues that will reveal hidden assets and get the accurate financial information.

The lawyer will use his or her expertise as well as a lot of different useful tools to find these hidden assets and secret virtual currency.

These tools used by a competent family lawyer are so efficient that it can also detect other related things apart from crypto investments and incomes such as:

  • Depositions
  • Subpoenas
  • Requests for admissions and
  • Requests for documents.

The divorce lawyer may also work together with specially trained and experienced accountants called forensic accountants in order to expose hidden assets.

These accountants will use and analyze loan documents, tax returns, and even electronic devices to find out clues of undisclosed crypto of the spouse.

Avoiding Support Commitments

It is very common to use Bitcoin as a useful means to hide assets and avoid legal obligations for support during breakups.

But if you are wondering how exactly it is done, here it is for your knowledge.

If you have all your money safely stored in your bank account or use it in any form of stock investment, real estate, gold or others it can be a big problem for you when it comes to paying alimony and/or child support.

All these assets and investments are easy to track and will be taken into account while calculating the amount of support.

However, on the other hand, if you invest some of your money in Bitcoin or other types of crypto coins, then you can reduce the total amount available to calculate the support amount.

It is the decentralized structure of Bitcoin or blockchain technology and the anonymity maintained in Bitcoin and crypto transactions that makes them literally untraceable.

You will own Bitcoin but not in its physical form. This means that you do not need to store this digital currency in your bank account.

Moreover, all your transactions made will be recorded on the blockchain that is controlled by a trail of computers, called nodes that may be millions in number and spread all across the globe.

This means that it is really difficult to trace any crypto transaction.

And, the lack of government regulation on crypto makes it a popular means to make the best use of its anonymity and avoid support commitments.

However, it is not recommended that you invest in crypto with only such intentions.

Instead, you are recommended to disclose your crypto investments and gains when such a situation arises which is difficult for you, your spouse, and especially for your child.

Conclusion

When and if one faces a situation when they have to go through family law proceedings, as pointed out by this article, it is much better to disclose the Bitcoin or crypto holdings and gains instead of hiding them to avoid support obligations.