Civil Law

Current reports indicate that the administration continues to pursue the idea that Americans should be able to meld cryptocurrency and private equity into their consellation of retirement assets. And, the people who offer these investments could not be more thrilled to secure access to what is estimated as a $ 30 trillion retirement fund market. Private Equity Eyes $ 29 Trillion Of Retirement Savings With Trump’s Expected Blessing

We have written about the risks of these investment plays and while we were pontificating, Bitcoin provided a demonstration. Let’s assume you and your spouse reached a divorce property settlement agreement on October 1 where you agreed to transfer to her $ 500,000 of your $ 1 million 401K account. Let’s add in that on October 1, 2025 you had 20% of your retirement account in Bitcoin. The retirement administration types are tasked with preparing legal documents to support the $ 500,000 transfer with requisite court approval. It is now mid-December and you are starting to see draft documents which will require court approval. But wait, you just checked and your Bitcoin lost 25% of value in the last 45 days. The rest of your account remained fairly stable during that time, but the $ 200,000 Bitcoin tranche is now $ 150,000. Who is absorbing that $ 50,000 loss? It won’t be Bitcoin.

We saw this happen in the public markets in 2008 when even the revered S&P 500 index suddenly crashed and lost one-third of its value. Back then if you had $ 1 million in an index fund and agreed to part with $ 500,000 on a fixed date, you were left with a measley $ 250,000; half of what you bargained for. The lesson from that crisis was that divorce agreements needed to say that your spouse would receive “$ 500,000 from the Vanguard Retirement Account plus or minus the investment experience associated with that account from the date of the agreement to the date the funds are actually tranferred to the assignee’s separate retirement account.” Under that language you both shared the benefit if the assets went up or the loss if they declined in value. Clients still argue with us about it. “Why should she get the benefit of my post divorce gains?” Answer: “Are you ready to pay her the full amount if there are serious losses?”

Bitcoin may not be regulated, but at least you can see where it stands every day because those values are reported. Private equity is a more challenging thing. It doesn’t trade on an open market and many buy-sell transactions are never reported because the parties don’t want the world to know. Public stocks are required to file reports daily of inside trading activity and to notify the Securities and Exchange Commission of other significant events. They report profits and losses quarterly and provide a balance sheet showing what they own and what they owe. Realize that even these regulations can fail spectacularly. Enron, Theranos, WeWork are some examples that jump to mind. But, at least there were requirements to provide filings which anyone can read on EDGAR Company Search and judge for themselves. If they don’t like what they see, the typical investor can dial up a trader and cash out. Private equity does what it wants and unless you demanded disclosure at the beginning of the fund’s formation, you get what your fellow investors decided should be disclosed. And private equity does not have brokers standing buy to cash you out if you are unhappy. Go find your own buyer.

Now let’s assume that you decide that publicly traded stocks and bonds are too tame for your retirement needs and/or you have some catching up to do because you didn’t put much money into retirement in your 20s and 30s. You like bourbon and you like Florida. These are two areas where private equity has a fair number of offerings and they would be happy to help pave your road to riches. In 2021 you started putting some money into these things; a private distillery operator such as Sazerac and a private equity outfit that had large stakes in resort hotels. You can’t check the value of your investment on any regular basis, but the private equity folks will send you some financial stuff-especially the good news.

Then 2025 came around and it brought a new administration which professed (a) it wanted to acquire Canada on a “friendly basis” and (b) Canada was a bad country that helped Americans get fentanyl. Let’s set aside the inconsistency and stick to the facts. The Canadians love Florida and bourbon as much as you do. Well, they did until the heads of state of the U.S. and Canada decided to mix it up with a trade war. That trade war has had huge consequences for the metals, lumber and auto industries. You can see it in the markets and the public filings. But what about your stake in Florida hotels and Kentucky distillers? You must be down; but how much? And wouldn’t you like to know that, as you and your spouse start talking about who gets the distillery interests versus the Florida hotels? Did you know that your Florida hotel friends have a $ 20 million balloon payment due in March and 2026 winter bookings are off 20%? So, how will you divide these assets in a world where there is no regular market pricing to guide you, and you may not get hard 2025 annual data until next Spring (2026).

When couples are together, stakes in private equity or speculative investments like crypto can make sense. But, in a divorce setting they promise to be a nightmare to value and a challenge to divide.  Imagine being a spouse with relatively low income and finding out that over 45 days 25% of your retirement (e.g. Bitcoin) rolled out with the tide. Of course, it may be back. But, in the meantime, you face some sleepless nights.

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