How Will Cryptocurrency Affect My Divorce?

How Will Cryptocurrency Affect My Divorce?

Did you know that a recent Pew Research Center survey found that 17% of American adults own some form of cryptocurrency? While this digital asset opens up exciting opportunities, it can also create problems, especially when it comes to divorce.

Since we formed in 2022, right in the middle of the crypto boom, our team at Andrea Heckman Law has witnessed firsthand how cryptocurrency can complicate divorce proceedings and increase tension between partners. In this post, we’ll break down how your crypto investments might impact your divorce and share practical tips on protecting your assets during this challenging time.

The Legal Status of Cryptocurrency in Divorce Cases

In the landmark 2019 case BSB v. BSC, New York Supreme Court Justice Matthew Cooper made a significant ruling: cryptocurrency should be classified as marital property. This decision reflects the dual nature of digital currencies, as they possess both investment and speculative value. For couples navigating divorce, this means that any cryptocurrency purchased during the marriage is likely to be considered part of the marital estate, making it subject to division. However, dividing cryptocurrency is a lot harder than it sounds.

The Challenges of Cryptocurrency in Divorce Cases

Unlike traditional assets, such as stocks or real estate, cryptocurrency doesn’t have a clear paper trail. In fact, cryptocurrencies like Bitcoin operate on a highly encrypted blockchain system with no central authority. This can lead to many complications during divorce proceedings when the division of assets is at stake. Some of the biggest problems people run into are:  

Valuation

One of the biggest challenges in dividing cryptocurrency during a divorce is determining its value accurately. Unlike traditional assets with fixed market value, cryptocurrencies are highly volatile, and their worth can fluctuate significantly within minutes. Furthermore, there is no centralized authority that regulates the value of cryptocurrency, making it even more difficult to determine its true worth. In addition, there are multiple types of cryptocurrencies, each with unique properties and values. All these factors make it challenging for couples and their attorneys to agree on how to divide this digital asset.

Hiding Assets

Another concern in divorces involving cryptocurrency is the possibility of one spouse using it to hide assets from the other. With the anonymity and lack of regulatory oversight in cryptocurrency transactions, individuals may try to conceal assets by transferring them into various forms of digital currency or using online exchanges. This can complicate the process of identifying and dividing marital assets, leading to prolonged and contentious divorce proceedings.

Tax Implications

Apart from valuation and division challenges, couples going through a divorce involving cryptocurrency may face tax implications. The IRS considers cryptocurrency as property, which means that any gains or losses from its sale or exchange can have significant tax consequences. In divorce, this can impact the overall financial settlement between spouses and result in further complications.

Practical Strategies to Protect Your Cryptocurrency Assets

Given the challenges posed by cryptocurrency in divorce cases, it’s essential to take proactive steps to safeguard your investments. Here are some practical strategies to consider:

• Keep detailed records: As mentioned earlier, lacking documentation can make it challenging to trace your crypto transactions and determine their value. Therefore, keeping detailed records of all your cryptocurrency investments is crucial, including the type of currency, purchase date, and initial purchase price.
• Consider a prenuptial or postnuptial agreement: One way to protect your cryptocurrency assets from being considered marital property is by having a prenuptial or postnuptial agreement in place. These legal documents can outline how assets will be divided in case of divorce, including any specific provisions for cryptocurrency.
• Work with experienced professionals: Divorce involving cryptocurrency requires in-depth knowledge and experience. It’s essential to work with an attorney who has handled similar cases and a financial advisor who understands the complexities of digital assets.

Don’t Let Your Cryptocurrency Add to the Stress of Divorce

Cryptocurrency can have a profound impact on divorce proceedings, making it essential to understand the potential challenges it presents. By grasping the legal status of cryptocurrency in divorce cases and employing effective strategies to safeguard your assets, you can reduce stress and secure a fair settlement. At Andrea Heckman Law, our team is dedicated to guiding you through this complex process, offering insightful advice on all aspects of divorce involving cryptocurrency. Don’t let concerns about your digital investments complicate your divorce—reach out to us for support during this challenging time.