Bitcoin, Litecoin, Dogecoin, and Ethereum have become part of many people’s vernacular in recent years. Unlike traditional currency, cryptocurrency (crypto) is decentralized and is tracked through a digital ledger known as blockchain. If you are getting a divorce in Minnesota and you and/or your spouse have invested in crypto, you might have concerns about the division of digital assets, questioning whether they can be traced, if your spouse will disclose everything in discovery, how it is assessed, and if current Minnesota divorce law even addresses this.
What Is Cryptocurrency?
Cryptocurrency is a decentralized digital currency that acts like cash but in a virtual space. It is also rapidly growing as an investment option. Though its price shows a lot of volatility, many see it as a way to diversify their portfolio or even having the potential to make a lot of money for them if there is a dramatic rise in price. This crypto is stored in a wallet, which is protected by a key, an alpha-numeric code used to protect those assets.
Is Crypto Traceable?
Crypto offers a certain amount of anonymity, but it is traceable. All transactions are recorded on a blockchain. These are attached to the owner’s public key. This public key shows all the transactions associated with it without giving access to those assets. It is a matter of linking a real person to a specific key. Forensic accountants and blockchain forensic experts are capable of researching and discovering these hidden digital assets that a spouse may have. This sometimes entails a forensic analysis of a spouse’s phone or computer to find the wallet.
Tracing can get a little more difficult when owners use cold storage to hold their assets. This is a storage device that is not connected to the internet. This is in contrast to a hot wallet that is. These hold both the crypto and private keys (passwords). Fortunately, this can still be traced, but there is the added complexity of someone holding the assets offline and safeguarding them in a hidden place.
Privacy tokens can be particularly difficult. They work on their own blockchains and have added layers of anonymity built into them. Senders, recipients, and amounts are disguised, which can make their discovery very challenging for forensic professionals. Though extremely difficult to trace, it can still sometimes be possible to locate.
Gaining Access
Situations do arise where the spouse controlling a wallet will refuse access to it. In such a case, the court may issue orders compelling the spouse to give access. Sometimes, it is necessary to subpoena a crypto exchange for information. In a divorce, if you can prove there is crypto, the court can issue an order to get access.
Assessing in a Divorce
Like other property, crypto might be considered marital assets and eligible for division. Think of it like money in a savings account. If the crypto was purchased before you were married, it might be considered separate assets. If it was purchased during, it is eligible for division, unless a valid prenuptial or postnuptial agreement has otherwise protected it.
Tax Considerations
The sale of crypto can require the payment of both income and capital gains tax. With capital gains tax, you pay more if you have held your digital assets for less than a year. Short-term capital gains for crypto held under one year ranges between 10-37%, where long-term varies between 0-20%. This is important to consider when dividing assets, as often other forms of property will be taken as an equivalent for other assets.
Protect Yourself
Times are changing, and if you are having a divorce, you need a firm that understands how our evolving financial landscape affects you. Call the Minnesota divorce lawyers at Heimerl & Lammers at (612) 294-2200. We offer a free consultation to discuss where you are and how we can best proceed to protect your interests moving forward.
