Could virtual currency be a new way to hide assets during a divorce? Some legal observers worry that bitcoins may be the next new way to cheat the system and avoid full disclosure during a divorce or child custody case.
Bitcoins were introduced as a virtual or digital currency in 2009. As of May 2016, one bitcoin is worth approximately $445 U.S. dollars.
Bitcoins are stored entirely online, and encryption techniques are used to regulate the currency anonymously and independent of any physical central bank. The coins are stored in wallets which are set up through third-party websites, and all transactions using bitcoins are conducted in an online marketplace. Individual users in these marketplaces are untraceable.
Because bitcoins are stored entirely online, they are a relatively dangerous type of currency. There is no bank where bitcoins can be withdrawn as cash, and if a person wants to cash in their bitcoins, they must sell them to another person or to a currency exchange. Bitcoins are not insured by the FDIC or any bank, and people whose online wallets are hacked and emptied have no resource for getting that money back. Because everything is online, bitcoins can easily be transferred overseas to countries that will not cooperate with the U.S. government.
In essence, bitcoins are the perfect way to hide money from creditors, the government, or angry ex-spouses.
During a divorce, both spouses are required to submit a financial affidavit which lists all of their assets and debts as well as their income. If a spouse has money stored in bitcoins, they would be an asset that must be disclosed. However, many spouses may not know that their partner has money stored in bitcoins, and even if they do, it can be nearly impossible to track that money down.
Bitcoins must either be purchased or mined. If they are purchased, there will be an initial paper trail. At some point in time, a person must have transferred actual money to an individual in order to purchase the bitcoins. If a spouse can find this transaction, it may be proof of hidden assets.
The problem with locating purchased bitcoins is that early purchasers may have spent very little money. For instance, a man in Oslo, Norway made headlines after purchasing $27 worth of Bitcoins in 2009. He forgot about his purchase until 2013, at which point they were worth over $886,000. In a divorce case, it may be difficult to locate a smaller transaction from several years ago unless the spouse discloses that he or she owns some of that currency.
A person can also “mine” bitcoins. The currency can be created using complex computer processes that validate the online bitcoin transactions. By contributing computer power to the Bitcoin network, people can earn or mine bitcoins.
Mining bitcoins takes a significant amount of computer power and expensive equipment. If a person is successfully mining bitcoins, it is likely that his or her spouse would notice the amount of equipment needed or the extra expenses in the internet bill. In that case, it may be easier to prove that the spouse has access to bitcoins which should have been disclosed as an asset in the divorce case.
It always takes time for the law to catch up with technology and a changing society. While bitcoins may not be a common type of currency, it is important to be aware of the ways that your spouse may be able to hide assets when you are considering filing for divorce.
The attorneys at Pacific Northwest Family Law stay up-to-date on the issues that may affect your family case. To learn more about how we can help you with your divorce, contact our office today by calling 360-926-9112.