Cryptocurrency, once a secret language among high tech investors, now has become mainstream. These digital assets commonly come into play during divorce proceedings. If you or your spouse has invested in Bitcoin, Ethereum, or other cryptocurrencies (coins), you might be wondering how these will be handled in your divorce. Like many assets acquired during a marriage with marital funds, cryptocurrency may also be considered marital property subject to equitable distribution. However, there are a few things you must know:
- Cryptocurrency is not easily discovered if not disclosed voluntarily;
- Cryptocurrency is more volatile than the stock market and its value literally changes by the minute, making valuation difficult to determine;
- How the cryptocurrency is held can change how you want to value and/or divide the asset;
- The IRS treats cryptocurrency as property, meaning that selling or transferring it can trigger capital gain taxes.
If you suspect your spouse has not disclosed cryptocurrency assets in the divorce, you can hire a forensic accountant that specializes in tracing cryptocurrency transactions and investments. Once discovered, resolving the valuation, division and distribution of the digital currency can be tricky. The first thing to determine is if the investment was made for long- or short-term gain and whether both spouses are interested in the investment or would prefer to offset against another asset. Also, you will need to determine if the cryptocurrency is held in digital wallet or if the currency is within a retirement account such as an IRA. If the cryptocurrency is within an IRA, this means you or your spouse did not directly contribute crypto to the IRA, but purchased it within the IRA in which there is a benefit from tax-deferred growth.
Cryptocurrency may be a modern innovation, but in the context of divorce, it requires the same diligence, transparency, and legal scrutiny as any other asset. The Family law team at Cohn Lifland Pearlman Herrmann & Knopf, LLP are proactive, informed, and prepared to use both traditional and technical strategies to ensure a fair outcome in your divorce.