Crypto Currency in Divorce Proceedings Undergoing Equitable Distribution

During divorce proceedings, couples will go through a process known as equitable distribution, where marital property is fairly divided between the parties. In an equitable distribution proceeding, a court requires the parties to complete an inventory list, whereby all property owned by either spouse is to be accounted for. The inventory asks that each party list all separate and marital property and to assign an estimated value to each item. Upon receipt of the inventory, and the arguments of counsel or the parties, the court determines the classification of each asset as being either, separate, marital, or divisible. The court will then value each item and distribute it to complete the equitable distribution process.

Separate property is property that a spouse obtains before marriage or property received as a gift or inheritance during marriage. Marital property is property that a spouse acquires throughout the course of the marriage and prior to separation, from martial efforts. Divisible property is property received during the separation that is the result of efforts made during the marriage to acquire the property, or the result of passive forces that affect the value of marital property.

While marital property is valued on the date of separation, divisible property is valued on the date of distribution to take into account any appreciation or depreciation in value that occurs between the date of separation and distribution. Once the court has determined the value of the assets, it will then equitably distribute the marital and divisible assets, which generally entails the equal division of assets between the two parties.

The equitable distribution process can be estopped when spouses successfully hide assets from one another. Nearly a third of all individuals who combine their assets with the partner have deceived them regarding money. Over half of the individuals who deceived their significant other hid cash, and over a third of them lied about finances, debt, or income. With the emergence of cryptocurrency in the market, hiding assets from a spouse has become even easier, making it more difficult for courts to successfully carry out equitable distribution amongst spouses in a divorce proceeding.

Most people have heard of the trend “cryptocurrency,” with the most recognizable type being Bitcoin. However, very few people actually know what it is or how it works. On the surface, cryptocurrency is digital money that is regulated using encryption techniques so that the creation of units is limited, and the transfer of funds is protected. Bitcoin is a form of this currency, released in 2009 and has since been used as a peer to peer system of exchanging digital money. The process of obtaining Bitcoin and using it efficiently is extremely confusing, but those that have mastered it have reaped significant rewards.

Issues with Bitcoin and cryptocurrency arises when the court attempts to value the divorcing parties’ marital estate. Cryptocurrency has never been formerly categorized as a specific type of asset and some parties feel as if they do not need to report it to the other spouse. It then becomes a way for a spouse to hide assets that would otherwise be subject to equitable distribution. If discovery documents show large sums of money being transferred to a Bitcoin exchange, or another cryptocurrency medium, and there is evidence of large cash withdrawals, then the other party needs to be on alert.

Recent arguments have sparked a debate about how cryptocurrency, specifically Bitcoin, should be classified for equitable distribution. Many in North Carolina propose that Bitcoin be officially categorized as a security to ensure that it becomes a required reportable asset for equitable distribution purposes. It would become subject to regulations by the Securities and Exchange Commission, making it easier for parties to find out the number of bitcoins their spouse owns.

Currently in North Carolina, because they exist outside the traditional financial system, cryptocurrency assets cannot be tracked by traditional means. However, digital forensics experts are able to track transaction history, holdings, and ownership by reviewing the publicly viewable transaction histories associated with the cryptocurrency. This process is incredibly difficult and commonly requires the assistance of an expert.

Equitable distribution was designed to divide divorcing parties’ property more fairly, but the vagueness of cryptocurrency, like Bitcoin, threatens the process. If you are undergoing a divorce proceeding and your spouse has, or potentially has cryptocurrency, it is crucial to obtain an experienced attorney as soon as possible. At Arnold & Smith, PLLC our family law attorneys have extensive experience in representing clients in divorce proceedings and ensuring the fair division of property, including cryptocurrency, in the equitable distribution process. Schedule an initial consultation with one of our experienced family law attorneys today to discuss your legal options. Call our office at 704.370.2828 or fill out our contact form online. Now taking cases throughout North Carolina with offices in Charlotte, Lake Norman, and Union County.