As published in the Journal of the American Academy of Matrimonial Lawyers.
By Richard West and Attorney Jonathan Fields
Despite promises of decentralization bringing innovative transformation to all corners of society, many of blockchain’s anticipated disruptions have yet to materialise. One sector that has been disrupted, however, is law. The potential that bitcoin gives an individual to take ownership of their finances is creating cause for concern in the courts, where legal complications are on the rise from a range of bitcoin-related incidents.
In the UK, and all over the world, courts are seeing more and more cases relating to cryptocurrency. Speaking to Brave New Coin, British lawyer Vandana Chitroda said that her firm Royds Withy King has seen a huge rise of this “relatively new phenomenon” and has been in contact with people all around the world concerned about their spouses hiding crypto.
Read article here.
By Jonathan Fields, Esq.
Bitcoins and other cryptocurrency (Ethereum, Litecoin, Ripple, etc.) are becoming increasingly popular and, more and more, at Fields and Dennis, we are seeing them with our divorcing clients and their spouses. Here is some information that every divorcing client should know about cryptocurrency and divorce.
Yes. In a divorce you have a duty to disclose all of your assets on a Rule 401 Financial Statement and in responses to discovery. Bitcoin, and other cryptocurrencies are assets that need to be disclosed. If you are paid in Bitcoin or other cryptocurrency, then you have to disclose this as well which may include reporting it as income on your financial statement.
Yes, bitcoins and other cryptocurrency assets will be treated in the same way as any other investment. No matter whose name they are in, they are part of the marital estate and will be divisible just like any other asset.
Some cryptocurrencies, like Bitcoin, have an identifiable exchange rate with traditional currencies like USD but others don’t. So, those cryptocurrencies can be valued in the same way as a publicly traded stock is valued. As to cryptocurrencies that do not have an identifiable exchange rate, the attorneys at Fields and Dennis can assist in locating a financial expert who can assist in this valuation.
In 2014, the IRS issued a notice declaring that cryptocurrencies are property, not currencies like dollars or Euros. Often they are investment property akin to stock shares or real estate. So if an investor sells a cryptocurrency after holding it longer than a year, then the profits are typically long-term capital gains. The tax rate is 0% (on low incomes), 15%, or 20%. In addition, there might be a 3.8% surtax in some cases, depending on the owner’s total income. The Tax Cuts and Jobs Act did not change this. This levy takes effect at $250,000 of adjusted gross income for most married couples and $200,000 for most single filers.
Furthermore, using cryptocurrency to buy something is considered a sale by the buyer, even if the recipient accepts the cryptocurrency. Recipients of these payments often have taxable income as well. If a worker is paid in bitcoin, payroll or self-employment taxes could also be due.
Transactions in a cryptocurrency which link to traditional currencies are traceable through the traditional currency bank account statements, or blockchain. Cryptocurrency transactions themselves are public but the users remain anonymous and cannot be traced without access to the currency holder’s ‘wallet.’ As there is no third party institution, like a bank, who can be relied upon to comply with orders for disclosure if needs be, there is no way to force disclosure of anonymous transactions short of hacking the user’s wallet.
However, hiding assets and lying to a court can trigger very serious consequences if it is later discovered.
Bitcoin had its coming-out party in 2017. With all the excitement and opportunities around cryptcurrency, it might be easy to forget about crypto taxation. Almost every bitcoin or other “altcoin” transaction — mining, spending, trading, exchanging, air drops, etc. — will likely be a taxable event for U.S. tax purposes.
Read more here.
Learn more about Bitcoin, Cryptocurrency and Divorce:
“Bitcoin Bitterness Starts to Make Messy Divorces Even Worse,” Hannah George, Bloomberg News (2018) (Jonathan Fields quoted)
Cryptocurrency and Divorce: A Primer
IRS Notice 2014-21: Virtual Currency Guidance
An interesting question is whether it is possible for the courts to force crypto custodians/digital vaults/digital wallet service providers (crypto custodians from hereon) to comply with orders to freeze assets, or whether it is possible to draft an order that effectively allows for the freezing of crypto assets.
Unlike a bank or traditional financial custodian, crypto custodians typically hold the private keys (a string of numbers and letters which allows anyone with knowledge of it to control or transfer the crypto assets) and do not ‘hold’ or record legal ownership of crypto assets.
Read more here.
Learn more about Bitcoin, Cryptocurrency and Divorce:
“Bitcoin Bitterness Starts to Make Messy Divorces Even Worse,” Hannah George, Bloomberg News (2018) (Jonathan Fields quoted)
Cryptocurrency and Divorce: A Primer
IRS Notice 2014-21: Virtual Currency Guidance
In the age of cryptocurrencies, what problems, if any, do you foresee when dealing with these potential assets?
MS: Cryptocurrencies are one of those cutting-edge problems that many attorneys are still attempting to solve. An attorney must be well-versed in cryptocurrency to even know what to ask for in discovery, how to value such assets, and where to look for the red flags which may suggest that cryptocurrency is being used to hide what many would consider “traditional divorce assets.” The good news is that there should be a trail of money any time cryptocurrency is purchased or sold…..
Read the article here.
Learn more about Bitcoin, Cryptocurrency and Divorce:
“Bitcoin Bitterness Starts to Make Messy Divorces Even Worse,” Hannah George, Bloomberg News (2018) (Jonathan Fields quoted)
Cryptocurrency and Divorce: A Primer
IRS Notice 2014-21: Virtual Currency Guidance
Jonathan Fields was recently quoted in a Bloomberg Technology article on Bitcoin and Divorce
“It’s now a standard part of our discovery process,” Jonathan Fields, a partner at Fields and Dennis in Wellesley, Massachusetts, said in an interview. “I will make sure I’ve got the right language and questions to ensure a partner discloses their cryptocurrencies.”
Read the full article below.