Bitcoin and Divorce
What is Bitcoin and What is its Value?
Bitcoin was created in 2009 and it is one of over 4,000 cryptocurrencies. It is a form of electronic cash that is not backed by a financial institution, but rather by peer-to-peer technology and cryptography. Bitcoin can be stored in a digital wallet on a computer or smartphone or on an encrypted portable device like a thumb drive.
Bitcoin value is based on the laws of supply and demand. When Bitcoin first started trading in 2010, it was valued around $0.0008 to $0.08 per coin. In 2017, Bitcoin was valued around $20,000 per coin. One Bitcoin will now cost you $58,798.30, but you can also buy it in fractional shares.
Where Can I Buy Bitcoin and What Can it Be Used for?
You can buy Bitcoin from several different locations: an investment brokerage, Bitcoin ATMs (there are more than 7,000 bitcoin ATMs in the U.S.), directly from other Bitcoin owners, or you can earn them through “mining” (a miner is a person that independently confirms Bitcoin transactions).
Once you own Bitcoin, it can be used to pay for products / services anywhere that accepts Bitcoin as payment.
It Bitcoin Marital Property?
Marital property is defined in C.R.S. § 14-10-113(2) as “all property acquired by either spouse subsequent to the marriage except:
- Property acquired by gift, bequest, devise, or descent;
- Property acquired in exchange for property acquired prior to the marriage or in exchange for property acquired by gift, bequest, devise, or descent;
- Property acquired by a spouse after a decree of legal separation; and
- Property excluded by valid agreement of the parties.”
Also, if non-marital property increased in value during the marriage, then that portion of the increase can be considered marital property. Colorado case law has also held that assets that cannot be exchanged may be property if there is sufficient concrete value to the owner.
If Bitcoin was acquired during the marriage, then it is marital property unless one of the exceptions in (a) through (d) above apply. If Bitcoin was acquired prior to the marriage but there was an increase in its value during the marriage, then that increase may be considered marital property.
How Can You Find Out if Your Spouse Owns Bitcoin?
In Colorado, within 42 days after service of the Petition for Dissolution of Marriage, it is mandatory to provide to your spouse several documents, including, but not limited to your last three years of tax returns, your last three years of financial statements, documents stating the current value of any investments, and most recent documents identifying all bank accounts and other financial institution accounts. Bank statements might show cryptocurrency transactions through an exchange company. Tax returns might show a cryptocurrency transaction as a capital gain or loss because the IRS considers cryptocurrency as property, not currency.
If Bitcoin is not revealed during the process of mandatory disclosure and you suspect that your spouse owns Bitcoin, then you will probably have to hire a digital forensics expert who can analyze financial accounts and trace possible cryptocurrency usage on electronic devices. But prior to hiring an expert, be sure to know where your spouse keeps important records, what electronic devices your spouse has, and whether you have physical access to those records and electronic devices.
Can the Value of Bitcoin be Divided Between Spouses in a Dissolution of Marriage and, If So, How?
In Colorado, there is a three-step process for distribution of property:
- Determine if the property is marital or not;
- Determine the value of the marital property; and
- Divide the marital property equitably.
Equitable division does not mean equal. Equitable division is explained in C.R.S. § 14-10-113(1): “In dividing the property, the court is instructed to set apart to each spouse his or her respective separate property and make a division of marital property, as the court deems just, after considering all relevant factors, including: (a) the contribution of each spouse to the acquisition of the marital property, including the contribution of a spouse as homemaker; (b) the value of the property set apart to each spouse; (c) the economic circumstances of each spouse at the time the division of property is to become effective, including the desirability of awarding the family home or the right to live therein for reasonable periods to the spouse with whom any children reside the majority of the time; and (d) any increases or decreases in the value of the separate property of the spouse during the marriage or the depletion of the separate property for marital purposes.
Keep in mind that since the value of Bitcoin is so volatile, you may want to have your spouse keep the Bitcoin while you get a different type of marital property of similar value.