As published in the Journal of the American Academy of Matrimonial Lawyers.
By Richard West and Attorney Jonathan Fields
Attention all divorce lawyers, cryptocurrency isn’t going away! Call it a pyramid scheme or a fad, but the fact remains that many divorce attorney’s clients are already knee-deep in cryptocurrency investments. Cryptocurrency investment within a marriage can be anything from a hobby of one partner, to a project shared by both partners to a secretive endeavor that can in the worst cases be used to hide money. There are so many issues to be tackled with cryptocurrency, from the purely financial ones – the difficulty of valuation for example – to the emotional and logistical (how can cryptocurrency be divided or cashed in? Can spouses even lay their hands on the passwords?) With the huge growth of cryptocurrency over the last year or two, Jonathan Fields delivered an extremely well-timed talk at the Virginia Chapter of the American Academy of Matrimonial Lawyers’ Annual Conference, entitled “Cryptocurrency: What Every Divorce Practitioner Should Know.”
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.
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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.
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.”
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The Boston metro family law, divorce and estate planning attorneys at the law firm of Fields and Dennis LLP are based in the Newton Wellesley area and serve the city of Newton: Auburndale, Chestnut Hill, Newton Centre, Newton Corner, Newton Upper Falls, Newton Lower Falls, Nonantum, Oak Hill, Waban and West Newton and town of Wellesley: Babson Park, Wellesley Hills, Wellesley Square Fields and Dennis also serves many clients in the Greater Boston and Massachusetts region including Ashland, Dover, Holliston, Medfield, Needham, Sherborn, Westwood, and all of Massachusetts.
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