Cryptocurrency and High Net Worth Divorce

Bitcoins in divorce

Cryptocurrency such as Bitcoin is a global, digital currency. A cryptocurrency doesn’t exist in the tangible world — it’s all virtual.

Bitcoins move around the Internet anonymously and can be hard to trace. Users don’t need to provide names or other forms of ID as the money is banked in the cloud. Bitcoin is becoming attractive for scorned spouses who want to hide assets during a divorce.

The process uses bank and wire transfers, credit cards and even cash. With no paper trail, a spouse can claim the money never existed. Any financial settlement and distribution of funds will be skewed in favor of the spouse using Bitcoins.

How to Combat Hidden Assets

Relatively new, Bitcoin is still unregulated. While it is difficult to keep a spouse from hiding funds in Bitcoin, it is not impossible. A aggressive New York divorce attorney can make sure a soon-to-be-ex-spouse isn’t trying to cheat on a financial settlement.

While Bitcoin users can pseudonymously send money in a peer-to-peer fashion, the transaction is only pseudo-anonymous. Users are allotted a litany of numbers as a Bitcoin billfold where they store their Bitcoins. With some forensic work, the addresses can be linked to the users’ real identity and tracked. In contentious divorces, persons often don’t want to play by the rules.

While large transfers are happening in a Bitcoin exchange raises red flags, forensic analysts specializing in tracking Bitcoins can dig deeper.

Courts Frustrated

The confusion of Bitcoin’s categorization is frustrating courts’ capability in properly valuing divorcing couples’ assets. Without an accurate value, fair distribution is stymied.

States such as New York and North Carolina are attempting to define Bitcoin as a security making Bitcoin a reportable asset. As Bitcoin is recognized as security, increased securities regulations may come into play which permits better reporting of Bitcoin transactions.

Once courts can accurately understand the real value of each party’s assets, jurists will be able to determine an equitable distribution.

Until then, ‘trust but verify’ may be the best guiding principle.

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