Own Some Crypto? Here are Some Divorce Basics
If you’re getting a divorce – or just contemplating one – you’re keenly aware the process involves splitting up your matrimonial assets. Traditionally, this means dividing up physical items, as well as intangibles such as bank accounts, investments, corporate shares, real estate investments, pensions, RRSPs, among many others.
But what if either of you owns bitcoin, or another type of blockchain-based cryptocurrency? How is that treated in under Ontario divorce law?
Before we tackle that question, let’s start from basics.
Bitcoin is one of several kinds of digital currency or “cryptocurrency”. In turn, cryptocurrency is the centerpiece of a multi-billion-dollar industry used by individual and corporate investors of all types, and by banks, investment companies, and mainstream financial entities.
Cryptocurrency transactions are essentially recorded in something known as the blockchain. That’s the decentralized, peer-to-peer web-based financial network that serves as a public ledger. By using the blockchain, cryptocurrencies can be transferred securely to and from anywhere in a world. Since the blockchain is not tied to any particular financial institution, brokerage, central authority or government, there is relative freedom in terms of regulatory oversight.
Now, let’s get back to how cryptocurrency is treated when you and your spouse decide to split.
Under Canadian divorce laws any holdings you or your spouse have in cryptocurrencies, such as bitcoin, are considered to be property. This means they are divisible assets, and will be equalized between you and your spouse in the same fashion as any other intangible assets (such as pensions) that you may own or have a legal interest in.
But cryptocurrency sparks added complexities when assessing their value. This is due to their conceptually-novel nature, and their notorious volatility.
Your respective lawyers should take this volatility into account when reaching a fair divorce settlement, or when helping the judge arrive at the wording of a court order that resolves your financial issues. Ideally, those documents might include a valuation and distribution formula that addresses such market fluctuations. There may also be tax repercussions to each of you, from a transfer or disposition. All of these aspects should be left to cryptocurrency valuation experts, and to lawyers who are experienced in dealing with these kinds of assets.
The second unique issue involves your disclosure duties. Cryptocurrency assets are subject to the usual legal obligations around full and frank disclosure that are imposed on each spouse in a divorce under basic Canadian family law.
Let’s say you and your spouse each own some bitcoin. The disclosure process can be as simple as providing each other your “private key” – which is the unique password that allows you to buy or trade on the blockchain. The blockchain structure will verify your holdings, and cannot be “hacked into” without the key and other privacy safeguards.
But what if you suspect your spouse of hiding cryptocurrency assets? Well, you need to take some extra steps to uncover them, and protect yourself. This is not as daunting as it may seem.
True, cryptocurrency has a reputation for being anonymous, nebulous, and tech-intensive. But some kinds of transactions are not opaque, especially if they are done through major crypto exchange services. They can provide a Statement from the account being used to make the transfers, similar to a bank statement.
On the other hand, some types of advanced cryptocurrency are specifically designed to be hard-to-track. If you’re suspicious, then hiring experts in crypto-forensics is a good start. The court can also help: If you can show evidence that there’s a reasonable likelihood your spouse is not being forthcoming – based on prior discussions, unexplained or suspicious transfers, or financial documents – then you may be able to get a tracing order or preservation order. The court has other established tools and sanctions at its disposal, which can be easily adapted to this scenario.
Incidentally, if you are the one who is tempted to try to hide your bitcoin – be forewarned. This is no different – and no less legally wrong – than trying to hide an offshore bank account. When the court discovers your duplicity, you may find yourself in hot water.