Bitcoin and Divorce: Are Cryptocurrencies Subject to Division?

How Cryptocurrencies Affect Divorce Settlements in North Carolina

Since the advent of Bitcoin and subsequently a host of other cryptocurrencies with their astronomical values, there have been a few misconceptions about them. Some of these misconceptions dwell on the legality of cryptocurrencies and whether they are recognized by courts during divorce settlements.

This article aims to explore the legal status of Bitcoin and other blockchain based cryptocurrencies in North Carolina and the impact they have during divorce settlements. If you’ve ever wondered whether Bitcoin or any other similar cryptocurrency can be used to conceal assets during divorce, you should find reading the following very interesting.

What are Cryptocurrencies?

According to experts Blockgeeks, a cryptocurrency is “a medium of exchange, created and stored electronically in the blockchain, using encryption techniques to control the creation of monetary units and to verify the transfer of funds. One of the best examples of this is the Bitcoin. In simple terms, a cryptocurrency is a virtual currency.

These virtual currencies are stored in digital wallets and exchanges which facilitate the transfer of the currencies and also trading. Digital wallets also record and hold the value of the currency in real-time making it easy to carry out transactions accordingly. It’s worth noting that the price of cryptocurrencies essentially fluctuate according to the laws of demand and supply.

What’s the Legal Status of Cryptocurrencies in North Carolina?

Cryptocurrencies’ (including Bitcoin) relevance in divorce settlements anchors strictly on its legal recognition as a commodity or a legal tender. In July 2016, the North Carolina Money Transmitter Act was signed into law with an extension that covers virtual currencies.

This Money Transmitter Act defined virtual currencies “a digital representation of value that can be digitally traded and functions as a medium of exchange, a unit of account, or a store of value but only to the extent defined as stored value under G.S. 53-208.42(19), but does not have legal tender status as recognized by the United States Government.”

Although the above law was set out to offer some form of regulation for cryptocurrency traders and brokers in North Carolina, it certainly gave Bitcoin and other cryptocurrencies the much needed legal recognition as a form of virtual investment or asset.

Following this Act, Courts in North Carolina would certainly take Bitcoin holding or any other form of cryptocurrencies seriously when dealing with cases that pertain to financial settlements.

What happens to Bitcoin during a Divorce?

Before delving into what happens to investments or holdings in Bitcoin or any other cryptocurrency during divorce settlements in North Carolina, it’s important to provide an overview of how matrimonial assets distribution works. The following steps are typically taken before a court decides which assets are eligible for distribution.

    1. Identify everything: All properties must be identified regardless of whether they are jointly owned or not.
    1. Classify everything: Properties will be grouped into marital or separate. In North Carolina, the courts will presume that all properties acquired during the marriage are marital. There are however exceptions to this.
    1. Property valuation: A fair market value is attached to each property based on their value on the day of separation. This is not usually straightforward with assets that have a fluctuating value.
  1. Assets distribution: Once the assets are valued, North Carolina courts will typically distribute the properties equally, although there are exemptions to this.

With regards to investments in cryptocurrencies during a divorce, the courts will certainly identify these as marital assets if they were purchased after the wedding and before the separation. Alternatively, if they were purchased before the marriage and have experienced a huge rise in value, the courts may consider the increased portion of the cryptocurrency investment as marital property.

Any Unique challenges with distributing cryptocurrencies in Divorce?

The most notable challenge associated with distributing cryptocurrencies is the very unstable nature of their valuation. Some cryptocurrencies could lose half of their value in a matter of hours making it extremely difficult to place an actual value on them even on the day of legal separation.

Unlike regular investment in stocks which are typically more stable in terms of pricing and overall valuation, Bitcoin and other cryptocurrencies have an ever-fluctuating price due to the fact that there is no real close of trade with them. Stock assets are usually valued by using their close of trading price on the day the separation takes effect. This is, however, impossible with cryptocurrencies.

The solution would be for the cryptocurrencies to be split in real time on the day of separation with one portion transferred into another wallet. This would mean that the asset has already been divided and both parties would individually bear the losses or profits associated with the price fluctuations.

Closing Thoughts

In the past, cryptocurrencies had no specific legal definition and as a result it would have been hard for family law courts to classify them as assets. Those times are long gone as nowadays, the law recognizes virtual currencies and as a result both parties in a divorce would be required to list out any of such investments they may have.

In the event that a spouse intentionally fails to identify such investments or holdings, the other spouse may be able to sue for fraud and seek redress in court.

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