The Role of Cryptocurrency in Chicago Divorce Cases: What You Need to Know

Divorce proceedings are rarely straightforward, and the rise of cryptocurrency has added a new layer of complexity to the process. As digital assets become increasingly common, courts in Chicago and across Illinois are grappling with how to identify, value, and divide these assets fairly.

In Illinois, marital property is defined as any property acquired by either spouse during the marriage, with a few exceptions, such as inheritances or gifts specifically given to one spouse. Cryptocurrency acquired during the marriage is generally considered marital property and is subject to equitable division. This means the court aims to divide assets in a way that is fair, though not necessarily equal.  However, cryptocurrency’s unique characteristics—its pseudonymous nature and fluctuating value—make identifying and valuing these assets particularly challenging.

One of the first hurdles in addressing cryptocurrency during a divorce is identifying whether either party holds digital assets. Because cryptocurrency transactions are often pseudonymous and recorded on decentralized ledgers like blockchain, they can be difficult to trace without proper expertise.

Here are some red flags that may suggest undisclosed cryptocurrency holdings:

1. Look for transfers to cryptocurrency exchanges or purchases of digital assets on bank statements.
2. Unusual spending on hardware like mining rigs or software wallets might indicate involvement in cryptocurrency.
3. IRS Form 1040 now includes a question about cryptocurrency transactions, which can provide clues.

If you suspect hidden cryptocurrency assets, consider having your divorce counsel hiring a forensic accountant with expertise in digital currencies to uncover them.

Unlike traditional assets, the value of cryptocurrency can fluctuate dramatically over short periods. Courts typically use the date of valuation closest to the divorce settlement or judgment to determine its worth. However, agreeing on a valuation date can be contentious, given the volatile nature of these assets. For example, Bitcoin’s value might swing by thousands of dollars in a single day. This volatility makes it critical to provide accurate, up-to-date valuations, often with the assistance of financial experts.

Once cryptocurrency holdings are identified and valued, the court must decide how to divide them. If both parties have the necessary technical knowledge, the court may order a direct transfer of cryptocurrency from one party to another. Alternatively, the cryptocurrency can be sold, and the proceeds divided based on the court’s equitable distribution ruling.  Also, one party may retain the cryptocurrency, while the other receives a larger share of other marital assets to compensate.

Cryptocurrency introduces 3 top challenges that are unique compared to traditional assets:

1. Lack of Regulation: The decentralized nature of cryptocurrency means there are no centralized institutions to provide account statements or transaction histories.
2. Privacy Concerns: Many individuals use cryptocurrency for its pseudonymity, making it easier to hide assets from a spouse or the court.
3. Tax Implications: Selling or transferring cryptocurrency may trigger taxable events, which must be accounted for in the division of assets.

Given the complexities surrounding cryptocurrency, it’s crucial to work with an attorney experienced in both family law, such as Jennifer R. Ward of Ward Family Law, and digital assets. Additionally, consider consulting financial experts or forensic accountants to ensure all assets are accurately identified and valued.

As cryptocurrency becomes more mainstream, its role in divorce cases will continue to grow. In Chicago and the broader Illinois legal system, courts are adapting to these changes, but the unique characteristics of digital assets require specialized knowledge and strategies. By understanding the challenges and opportunities presented by cryptocurrency, divorcing couples and their legal counsel can work toward equitable solutions that account for this emerging asset class. Reach out to Ward Family Law today for a consultation on your Chicago divorce case; Jennifer R. Ward can be reached directly via email at jward@wardfamilylawchicago.com