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Understanding the Impact of Cryptocurrency on Divorce

Synopsis
  • Cryptocurrency is a decentralized digital currency that operates independently of central authorities like governments or banks.
  • In family law, cryptocurrency is considered as property subject to division, typically split 50/50 in divorce proceedings, though its volatility poses challenges in valuation.
  • Locating and valuing cryptocurrency assets during divorce can be challenging due to its decentralized nature, but methods include examining tax returns, conducting discovery processes, and seeking court orders for disclosure from financial institutions or exchanges.
Understanding Crypto And Divorce

How Does Cryptocurrency Work During Divorce Proceedings and What Are Your Rights?

What is Cryptocurrency

Cryptocurrency is a decentralized form of digital currency that operates through a computer network without the need for a central authority, such as a government or bank, to back, control, or regulate it.

There are hundreds, if not thousands, of different cryptocurrencies on the open market, but many have little to no value. Bitcoin and Ethereum are among the more popular coins.

How does the Law view Cryptocurrency?

In Family Law, cryptocurrency is viewed as property. As with other forms of property, if cryptocurrency accumulates during the marriage, the property is generally divided 50/50 between senses. Unless a spouse can prove an extraordinary situation that would justify another form of division.

If your spouse owns cryptocurrency, you have the right to make a claim against it and can typically receive 50% of its value.

One of the main issues with cryptocurrencies is their volatility, which makes it challenging to track their value in case of divorce.

How do I know if my Spouse owns any Cryptocurrency?

During a divorce, your partner is required to reveal their assets through Form 13.1 Financial Statement. Therefore, your spouse is obligated to disclose the amount of cryptocurrency they hold at three different times: the Date of Marriage, Date of Separation and Current value. However, there are cases where individuals try to deceive the court by not disclosing their net worth. This is a common problem during divorces.

One of the advantages and disadvantages of using cryptocurrency is that it allows for anonymity, making it difficult to track the amount of currency.

If you’re unsure whether your spouse has any cryptocurrency, certain signs can help guide further investigation. These signs include:

  • Your spouse has mentioned owning cryptocurrency at some point during your relationship and is relatively knowledgeable about technology.
  • After reviewing your spouse's financial disclosure, you have noticed large amounts of money
  • being transferred out of your spouse’s bank accounts, such as through e-transfers, wire transfers, or even large credit card payments to suspicious sources.
  • You have witnessed your spouse use different forms of cryptocurrency for online payments.
  • You have witnessed your spouse use various forms of crypto holding and trading platforms such as Wealth Simple, Coinbase, Coin Square and others.
  • After reviewing your spouse’s financial statements, you cannot rationalize where a substantial amount of money is being spent or moved each month.

How can I locate my spouse’s cryptocurrency?

Due to its decentralized nature, locating cryptocurrencies can be challenging. Family law courts and

practitioners have used Various methods in an effort to gather information about someone’s cryptocurrency holdings. Some examples are as follows:

  1. Information: It is essential to search the marital residence for any information, including information pertaining to an individual’s crypto wallets, that could represent an individual’s public address where cryptocurrency is stored.
  2. Tax Returns: It is possible that your spouse claimed Capital Gains or Losses on cryptocurrency amounts in their tax returns. If so, you should request details about the sources of the tax claims.
  3. Examination for Discovery: during the Discovery process, you can request information under oath and ask for relevant documents. This would include asking your spouse about their crypto wallet.
  4. Third-party Court Orders: You can obtain a court order that requires a party to sign authorizations allowing disclosure of your spouse’s cryptocurrency holdings to financial institutions or exchanges.
  5. Bank and Credit Card Records: One can identify transfers to cryptocurrency exchange platforms by reviewing bank and credit card statements.

What is the value of my spouse's cryptocurrency?

Cryptocurrency is known for its high volatility, meaning its value can change rapidly. As a result, it's not unusual for a coin's worth to be substantially different on the date of separation from the date of marriage.

In family law in Ontario, the general position is that a spouse can capture the value of cryptocurrency at any given moment online and then divide it based on that value. Therefore, if the value has increased, you will typically be entitled to receive 50% of that increased value. On the other hand, if the value of the cryptocurrency has decreased, you and your spouse will share the loss.

Issues regarding Cryptocurrency

In some instances, parties have argued that the value of one's cryptocurrency should be determined at a different period of time on the basis that a spouse has intentional dissipation in anticipation of separation and divorce.

As cryptocurrency has little regulation, obtaining statements from a financial institution is not as simple as receiving one from a regulated financial institution. Since crypto assets are online and decentralized, governments have minimal influence and control over them. As a result, locating and tracking these assets during divorce proceedings can be challenging.

How is cryptocurrency divided in Ontario Family Law?

The courts have generally divided assets of cryptocurrency in two ways:

  1. Crypto Transfer: The transferor spouse will transfer a portion of the cryptocurrency to the former spouse's crypto wallet.
  2. Cash Equivalency: A cash amount equivalent to the value of the cryptocurrency will be transferred to the former spouse.

Given the unique nature of cryptocurrency and its decentralized structure, navigating its complexities during a divorce can be challenging. A qualified family law lawyer can help you understand the legal implications, determine the value of cryptocurrency assets, gather evidence, and advocate for a fair division of property.

Please call us at 905-215-1905 to book a consultation if you have any questions or concerns regarding cryptocurrency and its implications in divorce proceedings.