Dividing Cryptocurrency in a Divorce

A bitter divorce could include arguments over parenting time, property and money. And now, with an estimated 20 million Americans owning cryptocurrency, finding and dividing these digital assets is proving to be another contentious issue during many divorces. The decentralized nature of “crypto” and the lack of relevant regulation might appeal to some people looking to hide money from their soon-to-be former spouse. But while it can be difficult to trace cryptocurrency transactions, it is not impossible.

Crypto transactions are recorded in public ledgers called blockchains. Forensic investigators who specialize in crypto tracing can track Bitcoin, Ether and some other major cryptocurrencies as they move from online exchanges into a person’s digital wallet. When you get divorced and you know or suspect that cryptocurrency is part of the marital estate, it’s important to hire a New York lawyer who understands the crypto world and has relationships with investigators who focus on these transactions.

The existence of cryptocurrency in your divorce brings into play several tricky asset division issues into play:

• Cryptocurrency volatility — Crypto prices swing enormously and quickly, making it hard to pin down a value that can be easily divided between the two spouses. There could be a significant change in between the date of final separation and when the divorce is finalized.
• Taxes — A spouse who bought Bitcoin several years ago may be sitting on huge growth that is subject to capital gains taxes upon sale. This tax bill should be kept in mind as you’re working on a property settlement.
• Unreported income — The IRS has taken a while to figure out how to get people to report crypto gains and losses. Now, the IRS can come back years later and start an inquiry, which can impact couples who filed joint returns. You may want to get an affidavit from your spouse stating whether he/she has any unreported crypto income from past years.
• Splitting the crypto — Cryptocurrency exchanges may not have as much experience splitting assets between divorcing spouses as traditional financial institutions. It’s often a good idea to have any transfer done by a financial professional and you need to be careful about who has the private keys and passwords.
• Offsetting — In New York and other states, questions about suspicious transfers and unreported income of a crypto-owing spouse have led some judges to award a larger share of other marital assets to the party that doesn’t possess the cryptocurrency.

The attorneys of Bryan L. Salamone & Associates, P.C. take pride in being knowledgeable and informed about the world of digital currency and how it affects New York divorces. We speak the language of crypto and have access to experts to help identify and resolve issues. To talk to one of our attorneys, please call 1.631.479.3839 or contact us online to arrange a consultation. Our office is in Melville and we serve all of Long Island.