Cryptocurrency (“Crypto”) has dominated financial news recently due to the wild gains in value over the past year. Crypto is also making news for it’s volatility. Bitcoin and other Crypto have lost about 50% of their value since peaking earlier this year. Crypto is subject to division in and Illinois divorce. The following are some important considerations when dealing with Cryptocurrency in and Illinois divorce.
- Finding Crypto : It is well known the Crypto can be difficult to find and the appeal of Crypto for some people it’s clandestine nature. Many people own and hold Crypto through digital wallets such as Coinbase, PayPal, Binance, Robinhood and Kracken. Coinbase, Robinhood and Kracken are based in the United States and will respond to proper legal subpoena for information. Binance is mostly based in China and the ability to subpoena Binance is uncertain. It is common for someone to purchase Crypto through one of these wallets with funds from a bank account. Bank statements will show a debit from Coinbsae or Binance and then the other spouse will know that Crypto has been purchased and can proceed accordingly. Another way that Crypto is stored is on hard drives and USB drives. If you have the physical USB drive or can get access to someone’s computer, the Crypto key (how someone accesses Bitcoin) can be found. If someone earned profit from trading Crypto, those transactions should be recorded on the person’s tax return.
- Valuing Crypto: Cryptocurrency should be valued separately from the other assets in a parties’ estate. The reason is Crypto’s volatility from day to day. Crypto is similar to stocks in that it’s value changes from day to day, but Crypto is even more volatile as the value can change by hour 24 hours per day. Crypto should be divided like cash. For example, someone owns 10 Bitcoin which is valued at $300,000, the parties should each keep 5 Bitcoin rather than a spouse paying $150,000 for the 5 Bitcoin.
- Transferring Crypto: The IRS treats any gains on the sale of of Crypto as a taxable event. Transferring Crypto is also a taxable event. Consult a CPA when transferring Crypto to a third party or your spouse.
I was recently quoted by CNBC on this issue. Read the article on CNBC – Click here