How to Deal with Cryptocurrency at Separation and Divorce in BC

Cryptocurrency or Digital Currency accumulated during the marriage or common law relationship is considered Family Property in British Columbia. Family Property is generally divided 50/50 between spouses unless extraordinary circumstances dictate a different division. Putting a value on Cryptocurrency can be difficult due to its volatile nature, and so is tracking and discovering crypto when a spouse tries to hide it.

In this article, we will go through some important information on how cryptocurrency is dealt with through the courts in BC, and how to deal with them.

Cryptocurrency –  Do I have a Claim to it at Separation or Divorce Vancouver, Surrey or BC?

Courts in British Columbia have found cryptocurrency to be family property, despite the fact that it is not a traditional form of currency. If you have Cryptocurrency including Bitcoin, Ethereum, etc, and you accumulated these during the marriage, your crypto is generally divided 50/50 between you and your spouse.

If you spouse has crypto, you have the right to make a claim against the crypto and in most cases, can obtain 50% of its value.

How Do I know if My Spouse Has Digital Assets?

Your spouse has an obligation to disclose all of his or her assets during divorce through swearing and filing a Financial Statement. However, individuals may still try to hide assets from their spouse and not disclose them even in sworn statements. If you feel your spouse is hiding his or her crypto assets, look for the following signs:

• Your spouse is tech-savvy and has made many references to potentially investing in cryptocurrency during the relationship
• After reviewing your spouse’s financial records, you notice that there are large transactions to unknown sources. Some of these transactions can be wire transfers, credit card payments, or even e-transfers
• Your spouse earns a significant amount of money, but there are not many savings left, and you do not know how they could have spent that much money
• Your spouse has accounts with various cryptocurrency exchange platforms such as Wealth Simple and Coin Square
• You have seen your spouse pay for online purchases through Crypto.

How Can I Locate My Spouse’s Tokens or Cryptocurrency?

One of the main difficulties with cryptocurrencies is that they do not go through central banks and are, therefore, difficult to locate if an individual is not being forthcoming about how much crypto they have and what platform(s) it is located on.

There have been different methods used to try and obtain information on where and how much cryptocurrency somebody has. Some are the following:

1. Verifying your spouse’s tax returns. It is possible that they previously declared the capital gain or loss from cryptocurrencies. Therefore, you can request details on the sources of the gains/losses with supporting documentation.
2. During Examinations for Discovery, you can ask for details of accounts under oath, as well as make document requests. Asking your spouse for their “Public Keys” would be essential.
3. You can obtain an order that a party sign authorizations for various financial institutions to make a disclosure of your spouse’s crypto, which can also be sent to crypto exchanges.
4. By obtaining copies of someone’s bank/credit card statements and looking at their transaction history, you can see if there are transfers of funds that are being made to different crypto exchanges.
5. Noting any information that may have been left at the marital residence, especially those that have lengthy alphanumeric keys, as they could represent an individual’s public address, which is where the cryptocurrency is stored.

How is Cryptocurrency like Bitcoin or Ethereum valued?

Value of family assets is generally determined at the time of separation of divorce. The value of crypto changes almost on an hourly basis and it goes through volatile ups and downs. At the time of divorce, the value of these assets may have increased or decreased substantially.

Generally in family law, you can capture the value of crypto at any given moment online, and can divide it based on that value. If the value has increased, you will generally be entitled to 50% of the value, and if it has decreased, you will share the loss with your spouse.

You may be able to argue that Crypto should be valued at a different point of time instead of time of divorce or settlement if your spouse has dissipated his/her digital currency’s value. For more information, contact us.

What if My Spouse Has Recklessly Invested in Crypto and Reduced our Family Assets?

In some situations if your spouse has invested in crypto and recklessly dissipated with money through such investments, you may be able to argue that you are not responsible for such loss and you should be obtaining a higher interest in other family assets to make up for your spouse’s reckless investments. It is best to speak to a Family lawyer specializing in Crypto about this issue.

Procedure used to Divide Cryptocurrency at Divorce? 

There are different ways to divide cryptocurrency. The two main ones are:

1. A spouse will transfer a portion of the cryptocurrency (usually 50%) to the former spouse’s crypto wallet; or,
2. An equivalent amount in cash can be transferred to the former spouse in consideration of their share.

What are the Tax Implications of Dividing Crypto?

Capital gains are payable on the gains of profits on cryptocurrency. For example, if you purchased $20,000 worth of crypto during the marriage and at divorce it is worth $30,000 due to profits or gains, the $10,000 in profit attracts capital gains taxes which are added to your income and taxed based on your income bracket.

Therefore,

• if there is income tax owing on cryptocurrency that was sold during the relationship or at divorce, that tax should be shared 50/50 between you and your spouse.
• If there are taxes owing from the sale of crypto in the prior year of marriage, those taxes are family debt and should be paid 50/50 by both spouses.
• When you sell crypto as a part of your divorce settlement and it has increased in value, you will have to pay pay capital tax on it and your spouse may owe you for half of the payment.

There are ways to transfer or divide crypto while reducing taxes, or not having to sell crypto at all by making other adjustments. It is best to speak to a family lawyer to better understand how to save on costs and taxes.

The Difficulties with Cryptocurrency

Cryptocurrency is not like traditional money that you can go to the bank and deposit. While cryptocurrency is becoming more popular, and you can buy Cryptocurrency using your bank or credit card accounts, cryptocurrency is not stored within your financial institution. Therefore, individuals often use trading platforms to exchange cryptocurrency.

Given that there is little regulation in relation to cryptocurrency, it is not as straightforward as requesting statements from a financial institution. Crypto assets are created online and are decentralized, which limits the involvement of the government in them and, in turn, makes them more difficult to track and/or locate during divorce proceedings.

To set up a consultation with our award winning lawyers specializing in Crypto division, call us at 604-974-9529 or get in touch.