Part 1 of this two-part series covered a basic overview of virtual or “crypto” currencies, such as Bitcoin, and the rise and significance of the currency as an asset, subject to division, within the divorce context. In this installment, we will explore the tools divorcing spouses and attorneys can utilize to discover these virtual currencies during the divorce process.
Let’s imagine that, during a divorce proceeding, you suspect or learn that your spouse has a “digital wallet” as large as George Costanza’s infamous wallet in Seinfeld. What should you do? Well, despite the recent creation of these virtual currencies (more recent than the Seinfeld reference), many of the established techniques to gather information and documentation during a divorce proceeding can be effective in learning more about a spouse’s virtual currency portfolio.
Per the Supplemental Probate and Family Court Rules, within 45 days of the commencement of a contested divorce in Massachusetts, each spouse is supposed to provide the other with a Rule 401 Financial Statement completely and accurately declaring all of her/his income, expenses, assets, and liabilities, as well as an initial exchange of relevant financial documentation, commonly known as Rule 410 documents. This initial information and documentation can help construct an initial road map used to learn more about a spouse’s virtual currency holdings. As discussed in Part 1 of this series, Bitcoin and other virtual currencies do need to be disclosed as assets during the divorce process. Failure to disclose these assets can result in their forfeiture to the other spouse as well as other adverse consequences.
After the initial exchange of Rule 401 Financial Statements and Rule 410 documents, the rest is up to you. A contested divorce will have a discovery window, typically at least a few months as set by the parties or the Court, during which either party may reach into her or his discovery tool belt to dig for answers regarding a spouse’s “crypto-assets” (in addition to other areas of inquiry). Spouses should utilize the tools available in the discovery process to get a better sense of the actual transactions and scale of the other spouse’s virtual asset portfolio.
Common discovery tools include the following: Requests for Production of Documents; Interrogatories; Requests for Admissions; Keeper of the Records subpoenas; and depositions. Each of these discovery options can be helpful in gathering additional information about a spouse’s virtual currency holdings. That being said, as is the case with any discovery in a divorce, the keys are: to ask the right questions or make the proper request; and, particularly when assets are involved, to follow the money.
As a threshold issue, the spouse seeking information regarding the other’s virtual currency portfolio should try and find out the source and amount of the initial conversion of old-fashioned money (think standard bank account) into virtual currency. It may come as a surprise that a spouse’s initial purchase or acquisition of Bitcoin, for example, will show up as one or more regular transaction(s) on a traditional bank statement, sandwiched in between the purchase of gas, and, well, a sandwich.
In addition to finding the originating source(s) and amount of money used to acquire the virtual currency, you will also want to get a better sense of the scope and nature of a spouse’s transactions using virtual currency. This is where a solid understanding of virtual currencies is advantageous. To get a better sense of a spouse’s virtual currency transactions, you should try and identify: a spouse’s public id, public key, username, and digital wallets used to transact in virtual currency; any crypto-asset “market exchanges” (i.e., Coinbase, Bitstamp, etc.) that a spouse has used to trade virtual currency; and ledgers of transactions associated with any virtual currency account.
With effective use of your discovery tools and the ability to understand the information and documentation received, you will have a clearer insight into a spouse’s virtual currency portfolio. Depending on the scope of a spouse’s virtual currency assets and transactions, the information gleaned from discovery can prove integral in determining an equitable division of marital assets and reaching a fair and reasonable resolution of the divorce.
It is still unclear what the future will hold for these virtual currencies. Virtual currencies could someday become the new standard of banking and investing, or they could possibly disappear overnight. Ultimately, for so long as there is a market for virtual currencies, it is important to understand and recognize virtual currencies as yet another type of asset subject to division in a divorce and very relevant for discovery purposes.