Cryptocurrency and Divorce in Chicago, Illinois

In the decade of the 2010s millions of people purchased cryptocurrencies. Millions of people also got divorced. Therefore, many cryptocurrency owners got divorced and then had to figure out the division of their assets which included cryptocurrencies

Chicago is where many of the world’s commodities get priced and traded. So it's easy to see that Chicago has a great deal of interest in this new type of commodity whether it be called Bitcoin, Ethereum or any other type of cryptocurrency.

An Illinois divorce requires a full disclosure of all assets both marital and non-marital. This initial disclosure is done by listing your assets on the standard Illinois financial affidavit. This financial affidavit does not include an area for cryptocurrency.

Divorce attorneys will scour the financial affidavit and ask for documents to verify the claimed assets. An opposing divorce lawyer can issue a “Notice To Produce” asking for copies of statements for a 401k, a bank accounts, a brokerage account, etc. If you the party has access to the requested documents, that party must provide the requesting party a copy therof.
Failure to provide requested documents can result in a finding of contempt of court.

But, how would are crypto-currency holdings verified? Can it simply be a screen grab from Coinbase or other online platform for cryptocurrencies? Would anyone allow their ex or their attorneys to have the password to their crypto-currency accounts?

If adequate evidence of assets are not tendered in a timely fashion, the requesting family law attorney may issue subpoenas to third parties in relation to your case. For example, the divorce attorney may issue a subpoena to a 401k account holder that usually provides any requested so long as there is no objection from the account owner or their attorney.

For crypto-currencies, who or what can be subpoenaed? Cryptocurrencies are managed on a peer-to-peer network that is not held by any one individual. How do you get verification from the holder of an asset when there is no holder of the asset even available to subpoena.

The IRS has given us some direction. In 2017, the IRS has issued subpoenas to Coinbase, a crypto-currency exchange and a federal court subsequently ordered Coinbase to provide the following for their accounts:

"1. taxpayer ID number,

1. name,
2. birth date,
3. address,
4. records of account activity including transaction logs or other records identifying the date, amount, and type of transaction (purchase/sale/exchange), the post transaction balance, and the names of counterparties to the transaction, and
5. all periodic statements of account or invoices (or the equivalent)."

So, a subpoena can find out what has gone in and out of a cryptocurrency account but probably not the balances in those accounts.

So, as cryptocurrency exchange sites proliferate, the transfers between those exchanges will become so profuse that that tracing cryptocurrency amounts and values will become nearly impossible.

If the existence and quantity of a divorcing person's cryptocurrency actually gets determined, the next step in the division of marital property analysis is “what portion of the cryptocurrency is marital.” In Illinois, all property held by either party is presumed marital property unless it falls under one of the exceptions outlined in the Illinois Matrimonial statute 750 ILCS 503(a).

If cryptocurrency held by either spouse is a mix of marital and non-marital (some cryptocurrency was bought before the marriage and some cryptocurrency was purchased after the marriage) those amounts will have to be traced and subsequently isolated to determine who gets what?

Calculating the value of the cryptocurrency is, in itself, difficult. The volatility of the price of these assets makes it very difficult to adequately value at the time of the divorce. The value may have to be determined via exchanges on the day of the transfer. This happens for stocks in divorce so the same process will likely take place for crypto-currency in divorce.

In the future, I am certain that we will have new legislation and appellate court cases to guide us in regards to this new asset and how it will be treated under Illinois law. For now, cryptocurrencies remain a volatile issue with little legal certainty. This allows a lawyer educated in the matter a great deal of leverage in negotiations.

Contact my Chicago, Illinois family law office to learn more about what will happen to your cryptocurrencies before, during and after your pending Chicago, Illinois divorce.