Splitting Cryptocurrency Holdings During A Divorce

Over the last several years, digital assets, Bitcoin, Ethereum, Dogecoin, and other cryptocurrencies have dramatically increased in popularity. Now, tens of millions of Americans own cryptocurrency. When you purchase cryptocurrency as a married couple, this becomes a marital digital asset.

When your marriage falls apart, splitting your cryptocurrency holdings can become quite contentious. This level of complexity should be handled by a knowledgeable and experienced divorce attorney to ensure that your interests are protected.

What is Cryptocurrency?

If you, like many Americans, are unaware of what cryptocurrency is, but have suspicions that your spouse may be hiding valuable assets in your divorce, you may need a simple breakdown of what cryptocurrency is and why it is becoming an issue in your divorce settlement.

Cryptocurrency is a type of virtual or digital currency. It is protected by cryptography. This means that it is impossible to counterfeit. They are operated by decentralized networks that allow them to exist beyond the control of central authorities or the government.

Many people find cryptocurrency attractive because money transfers are cheaper and can occur instantly. Not to mention the fact that their decentralized systems do not fall apart at one sign of failure. However, cryptocurrency can be quite volatile. If you are going through a divorce, this volatility could have a significant impact on what you are awarded in your divorce settlement.

It is important to know that cryptocurrency is not a type of currency that is often, or ever, used for retail transactions. Instead, they could be used for cross border transfers and trading instruments.

Trouble Dividing Cryptocurrency in Your Divorce

There are many issues that occur when spouses divorce and attempt to divide cryptocurrency. Although many states follow equitable distribution laws to divide marital assets and property in divorce, this is not how divorce works in the state of Louisiana.

Here, under LA Civ Code 2338, we follow community property laws. This means that each spouse is entitled to half the marital debts and assets when the marriage ends. This means that the value of your cryptocurrency is also subject to community property laws in your divorce.

One of the biggest challenges surrounding cryptocurrency in divorce is determining whether it even exists. As previously mentioned, many spouses are unaware of their spouse’s digital purchases. You may be able to find out whether your spouse purchased crypto, Bitcoin, or other digital assets by combing through your bank statements and financial records.

If your spouse suddenly has extra money to make large purchases, without a reasonable explanation, then that may be assigned that they have access to hidden funds, possibly from cryptocurrency. Your attorney may need to file a subpoena to obtain access to your spouse’s electronic records and devices to uncover hidden crypto.

How to Divide Crypto the Right Way in Your Divorce 

As you go through your divorce and attempt to work with your spouse to resolve the terms of your divorce settlement, you must remember that all of your marital debt and assets should be divided 50-50. 

This means that both spouses are entitled to half the value of your cryptocurrency, as long as the cryptocurrency in question is considered a marital asset.

Any investments or assets purchased in the course of the marriage may be considered marital assets unless otherwise explicitly stated. Since cryptocurrency can be so volatile, your attorney may suggest that you add a volatility formula into your divorce contract. 

Then, if the value of the cryptocurrency changes by a certain percentage, the way that you divide your other digital assets, or other marital assets will then also change with this volatility. 

Do Not Forget Tax Implications 

It is also important to consider the tax implications of cryptocurrency. There are major concerns both spouses could face when divorcing with crypto. 

For example, if one spouse has seen significant growth from their crypto, both spouses may be subject to significant long-term capital gain taxes when you sell in your divorce.

You should also consider what happens if one spouse failed to report income made from cryptocurrency. When the IRS catches up to you, both spouses could be held accountable for any money owed to the treasury department.

Can You Transfer Crypto?

Once you and your spouse have worked out the terms of your divorce settlement, you will need to figure out how to transfer your crypto. Many investment companies will be able to help you figure out how to make this exchange. 

But the cryptocurrency exchanges are likely to have virtually zero customer service teams available to help you transfer your cryptocurrency from one spouse to the other.

If you want to be sure to protect yourself, your attorney can help you retain a financial professional who will protect your private keys, so you do not lose access to your digital funds. But remember, these keys provide access and management to your cryptocurrency. Keep the access to these keys, especially in your divorce, to a minimum.

What Happens If You and Your Spouse Do Not Agree on How to Divide Cryptocurrency 

It is more common than you might think for spouses to be unable to work together to determine how to divide their cryptocurrency and other marital assets. The division of marital property and assets is one of the biggest points of contention in any divorce. 

It is usually in both spouses best interests to work together to resolve the terms of your divorce settlement. If you can figure out how to divide your cryptocurrency and other marital assets between the two of you, then the judge will not have to step in and make these important decisions on your behalf. 

No one knows your marital property and assets like you and your spouse do. Do not let the demise of your marriage prevent you from obtaining the assets and property you need to move forward with your life.

Contact a Divorce Attorney in New Orleans 

If you have reason to believe that your spouse is hiding digital assets or cryptocurrency, or if your spouse has accused you of hiding crypto, and you want to protect your interests in your divorce, get the legal help and support you need.

Schedule your initial consultation with a dedicated New Orleans divorce attorney at Stephenson, Chávarri & Dawson when you complete our quick contact form or give our office a call at 504-523-6496.

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