Divorce and Cryptocurrency

How to Handle Cryptocurrency in Your Divorce

With over 10% of people in the world owning cryptocurrency, digital assets are becoming a hotly contested subject in divorce proceedings. Just like bank accounts or real estate, cryptocurrency can be a valuable property that is worth focusing on during settlement negotiations.

Who Gets Crypto in a Divorce?

Cryptocurrency might be a relatively new concept, but the same property rules still apply. Crypto assets are treated like stock and other investments. If you purchased the crypto during your marriage, it is marital property. This means you will need to find a way to split it with your spouse in a divorce. Even if you bought it with your own funds, the courts see all property purchased during marriage as joint property acquired through your and your spouse’s mutual efforts. The courts don’t necessarily require you to split your assets into equal halves, but you need a reasonably fair way of sharing them.

If the crypto was purchased before marriage, it will belong to the original owner. The only exception to this is that the other spouse might be entitled to the extra value that the crypto gained during the marriage if they did something to contribute to this growth in value. So if one spouse bought crypto before marriage and the other spouse stored and managed the crypto for them, they might deserve a share of the crypto’s appreciated value.

Determining the Value of Assets Can Be Tricky

When it comes to splitting crypto assets during a divorce, the biggest challenge can be determining their worth. Cryptocurrencies are even more volatile than stocks, so prices go up and down drastically. The same crypto that could be worth thousands one day might be worth pennies the next. You’ll need to find some way of settling on an agreed-upon value for the crypto, so you can start discussing how to fairly divide it. Some common strategies divorcing people use when determining crypto value include:

• Getting an expert to assess the crypto and provide an estimated value that takes into account past pricing history and future price valuations
• Agreeing to “freeze” the crypto’s value on a certain day and use that specified value for the rest of divorce negotiations
• Using the price of the cryptocurrency at the time of purchase
• Using the price of the cryptocurrency at the time of the divorce
• Ignoring the coin’s worth in fiat currency and simply dividing it into shares based on the number of tokens

Staking and Other Unique Features May Impact Asset Division

Because of the way that they’re designed, cryptocurrencies can have features that are not found in traditional fiat currency or stock. One of the most common features is “staking.” Staking is a blockchain technology that allows a user to gain rewards in exchange for not selling the crypto. The longer the person holds it, the bigger the staking rewards they’ll receive.

In a divorce, this means that a spouse who keeps staked crypto is also keeping an income-generating asset, so the extra funds need to be taken into account. Furthermore, selling staked crypto leads to higher taxes, so if you’re accepting the proceeds from sold crypto, make sure to factor in the taxes.

Other unique blockchain features you need to consider during your divorce include:

• A standard crypto transfer makes the crypto eligible for capital gains taxes. To avoid taxes, you need to make the transfer part of an official court order.
• Many crypto exchanges charge higher fees than banks or investment account holders do. Calculate these fees ahead of time to avoid unpleasant surprises.
• It’s a lot harder to get income from crypto garnished for child support and alimony. If you suspect that your spouse will refuse to pay these costs, be wary of giving them a lot of crypto.
• Owning crypto can come with other perks such as the ability to vote in blockchain elections. For some tech enthusiasts, these perks will give them more motivation to retain access to all the crypto.
• Some blockchains let you attach NFTs to individual crypto tokens. This can cause a small crypto token to be worth far more than its standard market value.

Cryptocurrency Is Easier to Hide in a Divorce

Unfortunately, some people may try to take advantage of others’ unfamiliarity with cryptocurrency. Unlike a bank account, it’s not an asset that you can find during a basic analysis of your finances. Some cryptos are designed to be anonymous, which can make it even harder to prove their value or even their existence.

For example, if a person purchases Bitcoins, they could own millions of dollars without any real-world proof besides a piece of paper with private crypto keys written on it. If you aren’t aware that your spouse bought crypto, you might not even think to bring it up in a divorce.

If you suspect that your spouse is hiding Bitcoin, it’s important to consult with an expert. A forensic accountant with experience in crypto can help to closely analyze your finances and look for clues that your spouse is hiding crypto. Your divorce attorney can also help you by filing court orders to request more information. Trying to hide assets during a divorce is illegal, so if you can prove this, the court can impose penalties such as:

• Reconfiguring the division of the assets
• Bringing criminal charges for fraud, perjury, or other relevant crimes
• Issuing fines for contempt of court

Certain types of smart contracts may temporarily freeze crypto coins so that they can’t be transferred right away. In these cases, you’ll need to carefully phrase paperwork to ensure you still get your share after the funds are unlocked.

Helpful Strategies for Dividing Crypto in a Divorce

Because cryptocurrency is such a versatile asset, there are a lot of ways to divide your shares during a divorce. By being creative, you can find a solution that works great for everyone. Depending on your situation, you might want to try one or more of these useful strategies:

• The spouse who is more familiar with crypto gives the other person funds equal to the value of the crypto.
• The current crypto assets are divided into two separate wallets so that each party gets an equal share of crypto.
• The person who bought the crypto agrees to sell a portion and give their spouse the funds from the sale.
• One person agrees to give up any claims on their partner’s crypto in exchange for the family home or other assets.
• Both parties agree to sell all the crypto and split the resulting assets in half.

Since cryptocurrency can be complex, it’s a good idea to work with a divorce attorney who has experience handling crypto. At the Law Office of Kelly Berton Rocco, our team works hard to stay up to date on the latest technology. We can help you understand how crypto affects your divorce and discuss your situation. To learn more about our Hackensack divorce services, call 201-343-0078 or fill out our contact form.