The mysterious digital currency known as Bitcoin has been making sensational headlines for the past year. Worth pennies only 18 months ago, the price spiked to $1200 at the end of last year and made some basement dwelling internet nerds into instant millionaires. Unregulated and completely anonymous, Bitcoin has also become a favored currency for illegal activities. Underground markets sell drugs, guns, and other contraband around the world online with speed and secrecy using the digital currency.
Along with other unlawful acts, Bitcoins also looks to be a prime medium to hide assets. Governments all over the world are attempting to draft legislation to stop tax evasion by digital currency. Hiding assets is a constant concern in divorce and the new technology of Bitcoin seems ripe for abuse by spouses not wanting to pay their fair share. Is Bitcoin as powerful as the headlines claim? Find out more as we discuss Bitcoins and Divorce.
The Temptation of Bitcoins
Traditional assets generate a paper trail. Most banks require personal information including your social security number and government issued identification before opening an account. All deposits into and withdrawals from the account are recorded. All your activities on the account will be monitored for compliance with state and federal banking regulations.
The same goes for other assets. Whether it is real property or stocks and bonds there is clear documentation of ownership. If a judge believes that assets are being hidden, the court can subpoena records from financial or governmental institutions to track down the money. With Bitcoins, it is not that simple.
Each Bitcoin exists only as a string of computer code. Instead of banks or regulated financial institutions, Bitcoins are stored in digital wallets. Like Swiss bank accounts, these digital wallets are completely anonymous and can only be accessed with complex pass codes. While some companies host online wallets, most wallets only exist on a user’s computer. The wallet can be saved to a USB drive and hidden away. Nothing within the code of the wallet directly identifies the user or identifies who sent funds to the wallet.
Since it is digital currency, Bitcoins can be transferred across the globe in a matter of minutes. Unlike a wire transfer, a Bitcoin transaction only requires a few clicks of the mouse to move large amounts of money internationally. This creates the potential for abuse as a dishonest spouse may attempt to use Bitcoins to move money overseas and beyond the reach of the court.
Both state and federal regulators are attempting to play catch-up and pass laws to regulate Bitcoin and limit abuse. Still many courts and attorneys do not fully understand how Bitcoins work and how they can be used to hide assets in a divorce case.
Don’t get Bitcoined
Since Bitcoins are such a new technology, some spouses may be caught completely unaware as marriage assets disappear into a digital black hole. All is not lost though, bitcoin purchases must originate somewhere. Bank transfers and other financial transactions can reveal bitcoin purchases. Hiding assets is still illegal, regardless of the method. Your attorney can make the court aware of any suspicious activity and make sure assets are fully accounted for in the divorce.
It will likely be sometime until we see the full impact of bitcoins on divorce. As more people start using digital currency, the opportunities for abuse increase. In the future, bitcoins assets may be a common issue in every divorce. Or the technology may fail to gain popularity and disappear. In a future article we will discuss why the bitcoin panic may be just a lot of hype.
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