Cryptocurrency’s Impact on Florida Divorces
When looking over the revised financial disclosures rules implemented by the Florida Supreme Court late last year, there was a brand new disclosure requirement:
“Parties in any family law case are now required to disclose to each other any virtual currency transactions within the past twelve months and provide a listing of all current holdings of virtual currency, which includes cryptocurrency.”
The updated disclosure requirement was needed as there are more regular instances in cases where one or both parties hold cryptocurrency, an asset required to be divided by a judge in a divorce.
Cryptocurrency – the Basics
Cryptocurrency is a digital asset that its owners can use like cash to make purchases, and some owners hold cryptocurrency as an investment. The most common cryptocurrency, Bitcoin, was released in 2009, but there are now hundreds of other types that can be purchased or earned.
Cryptocurrencies are stored on a database known as a “blockchain,” and the units of the cryptocurrency are numbers on the blockchain. While the blockchain is public and can be viewed by anyone with internet access, determining who owns a particular unit of cryptocurrency requires knowledge of a private key or password, which is known only to the unit’s owner. Cryptocurrencies have gained popularity in part on the ability of their users to make transactions anonymously and without third-party interference, regulation, or fees.
Because cryptocurrency transactions and holdings are outside of traditional banks or investment brokerages, often there are no financial institutions where a party in a divorce can go to seek information about the amount or value of their other spouse’s cryptocurrency. It is important for attorneys to look for signs of digital currency transactions and to address this issue with clients.
Looking at traditional banking records for unexplained transfers or spending, reviewing how a party purchased items and looking for, or finding the absence of, a paper trail through banking or brokerage transactions may tip a party off that a person may be using cryptocurrency. There may also be a need to hire forensic experts who can attempt to pull data from personal devices or computers for evidence of transactions, and the expert may be able to gain access to a digital wallet of private keys to find the cryptocurrency holdings.
Attention to Detail
Notably, parties must pay attention to their finances during their marriage. If a spouse has talked about having an interest in cryptocurrencies, it can help alert the divorce attorney to look for the signs of cryptocurrency activity.
Finally, for the spouse holding the cryptocurrency, be upfront and honest in disclosing their holdings. Once a judge becomes convinced you are hiding information related to your amount or value of your holdings, it can be difficult or impossible to gain back the judge’s trust in accepting your testimony regarding valuations of all of your assets to be divided. Once the cryptocurrency holdings are identified, if they are classified as a marital asset, the holdings will need to be divided. Since cryptocurrency is highly volatile, valuing the holding can present an issue for the parties or the judge in dividing the holding.
There may be tax implications to the parties which also need to be factored into the division of the asset. If you find yourself in a situation where you or your spouse own cryptocurrency, you should discuss this with your lawyer early on in the case so a strategy can be developed to make sure this asset is fairly and properly identified, valued, and divided in a divorce.