How Cryptocurrency is Handled in Divorce

How Cryptocurrency is Handled in Divorce

Cryptocurrency is a digital currency that is a part of a decentralized network not governed or set by a government or central authority. A few years ago, cryptocurrency was not nearly as common as it is now. More and more people are investing in cryptocurrency and, while it is considered an asset, it can be tricky to divide during a divorce. And, not only is it difficult to divide cryptocurrency but some spouses are even using cryptocurrency to hide assets during divorce because of how complicated it can be.

Cryptocurrency, just like stocks and bonds, fluctuates daily. So, determining the value of cryptocurrency is not a simple task and there may be tax implications as well. CNBC discusses the challenge of dividing cryptocurrency and handling taxes associated with cryptocurrency, “One of the tricky aspects of splitting up cryptocurrency is nailing down the value. Digital currency worth $200,000 may drop to $100,000 or rise to $400,000 during the divorce process, said Johnson. Spouses may prepare by adding some type of volatility formula into the divorce contract, he said. For example, if the value changes by “X” percent, there may be a corresponding change in how they divvy other assets. “You’ll want to keep that as a moving target as you’re going through the process,” Barrett said…Taxes are another aspect to consider during the divorce negotiations, said Johnson. For example, a spouse who bought bitcoin four or five years ago may have had significant growth, subject to long-term capital gain taxes when they sell. As couples negotiate, they may need to factor in their post-divorce tax bill, Barrett said.”

Aside from the challenges of computations is the fact that cryptocurrency is easier to hide or deny access to because it cannot be traced to an individual without a special “private key.” But, the account holder is the only one with the private key and if they claim they “lost it” or “cannot find it,” there are not many ways to determine if it is true or what the actual value of the cryptocurrency held is. If you and/or your spouse have cryptocurrency assets, it is important to work with a divorce mediator or attorney experienced in cryptocurrency. Your mediator will help facilitate respectful and productive conversations that enable you to fairly divide marital community property during your divorce.

About Oliver Ross

Oliver Ross, JD*, PhD founded Out-of-Court Solutions Inc. in 1995 and since then has mediated over 3,000 divorce and family matters. He is a select member of the Maricopa Superior Court Family Mediation roster