Cryptocurrency investments have increased in popularity in recent years, with bitcoin and Ethereum paying off in significant ways. For many investors who entered into this market, the wealth they have accrued is quite notable, and occasionally, cryptocurrency has been used to hide wealth from authorities and spouses. This has added complications to the divorce process, especially in instances where couples have to come to an agreement with how to divide assets. This is a problematic issue, and this article will cover why it is necessary to declare your crypto assets, and why it is considered an asset during divorce proceedings.
Spouses who hide assets prior to and during a divorce are unfortunately common, creating a number of problems. By its nature, cryptocurrency is easy to conceal, since it can be hidden with a digital wallet that restricts access to the owner. It does not require a bank or a financial advisor to facilitate the transfer of wealth. Instead, these transactions occur on a blockchain, where transactions move between digital addresses. A digital address is a sequence of numbers and letters, not unlike an email address, and each transfer is recorded on the digital wallet.
Disclosing your digital assets during the discovery process of a divorce is mandatory according to Rule 401 Financial Statement. If you do not do so, spouses do have ways to uncover them. The first way is to go through bank and credit card statements. Since cryptocurrency is purchased at the initial stage with liquid cash, that means that at some point there is an actual money trail to follow. This can be tracked on bank and credit card statements when the names of the cryptocurrency exchange pop up.
Another way that your crypto investments can be uncovered is through loan applications. Individuals generally try to show a full picture of their wealth on loan applications, and crypto assets may be included in order to show that you have a higher income.
Additionally, individuals often report their digital income on their tax returns, which is required by the IRS. This requirement began in 2014, with the IRS stating that digital currencies are property not unlike stock shares. In many ways, these are investment properties not unlike stocks or real estate, and the profits gained would be considered long-term capital gains. And using cryptocurrency to make purchases or trades would count as taxable income. While the practice is not widespread, some employers are beginning to adopt cryptocurrency as a way to pay employees, which would make it a form of income.
An investigation into your assets can be costly, involving time, money, and court orders. Attempting to conceal your crypto investments can also expose your dishonesty, which may lead to sterner judgments against you when you are dealing with the divorce judge. It is best to be honest with your soon-to-be former spouse when you are going through a cheap divorce in Montgomery County, lest you incur further penalties in the divorce.