What Happens to Crypto Assets in Divorce?
Divorce is often a messy, emotional process, and the chore of property division can be difficult – especially when you’re dealing with cryptocurrency assets. In most divorce cases, crypto assets are considered marital property. As such, they may be subject to division in the divorce process.
What is cryptocurrency?
Cryptocurrency is a digital asset built with blockchain technology, a decentralized and immutable ledger system that can be used to store and transfer value online. People use it because it offers many benefits compared to traditional currency forms.
For example, cryptocurrency transactions are fast, secure, and borderless, making them ideal for online transactions. What’s more, cryptocurrencies like Bitcoin are not tied to any centralized authority or bank, giving users greater control over their money.
What is cryptography?
Cryptography is the practice of encoding and decoding information in a secure manner. It is used to secure crypto transactions by ensuring that only authorized parties can access and view the information being transmitted. Cryptography involves the use of specialized algorithms and mathematical techniques to encrypt and decrypt data. This makes it extremely difficult for unauthorized parties to gain access to the information.
One of the most common cryptographic techniques is called public-key cryptography. This involves using a pair of linked keys – a public key that anyone can use to encrypt data and a private key that is kept secret by the owner – to scramble messages in such a way that they can only be decrypted by someone who has access to the private key. This allows for highly secure communications between parties because even if their messages are intercepted, they cannot be read without the private key.
Other cryptographic techniques involve creating digital signatures or hash functions, which are ways of encoding data so it cannot be tampered with or altered in any way. These techniques are used in many areas of modern life, from securing financial transactions on platforms like Bitcoin or Ethereum to protecting sensitive medical records or personal data online.
Is crypto considered property in divorce?
Crypto assets can pose a contentious issue in divorce cases, as they can be difficult to define and value. But in general, crypto is considered an asset in divorce. It may be divided between spouses like any other asset, but determining its value can be tricky, especially if the coins or tokens were purchased or transferred at different times or with different amounts of money.
When formulating a divorce settlement, some courts simply view these assets as cash equivalents. Others take a more nuanced approach, assigning a specific value to each coin based on factors such as trading volume and market capitalization.
Ultimately, the way crypto assets are treated in divorce depends on the circumstances of the divorce case. If you're having trouble agreeing on the value of these assets or how to divide them fairly, consider working with a neutral certified divorce financial analyst, or CDFA.
How is cryptocurrency split in a divorce?
One of the most important considerations when it comes to divorce and crypto assets is whether the crypto is marital property or separate property.
- The term “marital property” generally refers to assets and income that were acquired during a marriage. This may be thought of as “community property” that both spouses have a right to.
- The term “separate property” generally refers to assets or income acquired before marriage or inherited by one spouse during the marriage.
Marital property vs. separate property
In general, any crypto asset acquired during the marriage is considered part of the marital estate. Hence, it is subject to division upon divorce.
However, digital currencies that were owned prior to the marriage or that were inherited during the marriage would be considered separate property and would not be subject to division upon divorce.
If one spouse can show proof that they obtained their digital currency holdings prior to getting married, they may be able to keep them out of the marital estate altogether.
Potential problems with dividing crypto
Crypto assets can fluctuate in value dramatically over short periods of time. This makes it difficult to determine the true value of these assets at any given moment. It can make property division extremely complex in a divorce settlement.
Another challenge is tracking down records of cryptocurrency trades and transfers. These records are not always easily accessible or transferred automatically into other financial accounts.
FAQ about cryptocurrency in divorce
Is my soon-to-be ex-spouse entitled to my cryptocurrency?
It depends. If a crypto asset was acquired during the marriage, it could be viewed as marital property and subject to division under current divorce laws. If it was acquired before the marriage and never commingled with marital funds or assets, it could be viewed as separate property and not subject to division in a divorce settlement.
Do I have to disclose my cryptocurrency accounts in a divorce?
Yes. These digital assets must be disclosed. Do not attempt to hide assets or transfer them to someone else. This action would be viewed unfavorably by a court, which could result in an unfavorable distribution of assets for you.
What if my spouse hides cryptocurrency from me?
If you believe your spouse has hidden cryptocurrency they did not disclose on their financial affidavit, you must alert the court immediately. Distribution of marital assets requires full transparency from both spouses. Hiding assets is unfair and could result in an unfair distribution.
For this reason, it's vital that you carefully review your spouse's financial disclosures during your divorce proceedings. If you don't see all of their assets listed, they could be trying to prevent you from getting your fair share.
Who can help with cryptocurrency issues in my divorce?
One of the best options for getting help with your crypto assets during divorce is to work with a financial advisor or financial planner who is familiar with blockchain technology and cryptocurrencies. These professionals can help you navigate the legal, tax, and financial complexities of splitting up crypto holdings.
Another option is to enlist the help of a mediator or other neutral third party who can help you come to an agreement about how to divide your crypto assets. Working collaboratively with your ex can be an effective way to reach an agreement that takes everyone’s interests into account.
Divorcing spouses often need a helping hand with tough issues like this. That’s why we created Hello Divorce: To assist people with their divorce proceedings so they can move on to the next chapter of their lives with their bank account and dignity intact. We offer affordable divorce plans and a la carte services, including one-on-one sessions with certified divorce financial advisors, mediators, and attorneys who can provide legal advice.
Bottom line: If you and your spouse own cryptocurrency and need a friendly professional to help you sort it out, give us a call. You can view our calendar and schedule a free 15-minute phone call with one of our account coordinators here.