Navigating Cryptocurrency in Divorce Settlements

As the world increasingly embraces digital assets, cryptocurrency has become a significant consideration in divorce settlements.

At the Law Office of MariAnn Hathaway, we recognize that understanding the implications of cryptocurrency within divorce law is essential for our clients in Canonsburg, Pennsylvania. 

Here, we’ll explore how cryptocurrency is treated in divorce settlements, the challenges it presents, and the steps to take to protect your interests during this process.

Cryptocurrency in the Context of Divorce

Cryptocurrency refers to digital or virtual currencies that use cryptography for security, making them difficult to counterfeit. Bitcoin, Ethereum, and Litecoin are among the most recognized cryptocurrencies. These assets can appreciate significantly in value, which raises important questions during divorce proceedings.

In Pennsylvania, divorce law mandates an equitable distribution of marital property. This means that both spouses are entitled to a fair division of assets acquired during the marriage, including any cryptocurrency holdings. 

As more people invest in digital currencies, understanding how to identify, value, and divide these assets becomes increasingly important in divorce settlements.

Identifying Cryptocurrency Assets

The first step in addressing cryptocurrency in divorce settlements is identifying whether either spouse holds digital assets. Cryptocurrencies may not be as visible as traditional assets, making it crucial for both parties to disclose their holdings. Unfortunately, the decentralized and anonymous nature of cryptocurrency can complicate this process.

To confirm all assets are accounted for, both spouses should be transparent about their financial situation. Individuals must disclose any cryptocurrency investments during the divorce proceedings. It’s important to work with a legal professional who understands divorce law and can help uncover hidden assets if necessary.

In some cases, a spouse may have engaged in trading or investing in cryptocurrency without the other’s knowledge. This lack of transparency can lead to disputes and complicate the divorce process. Therefore, a comprehensive understanding of both partners’ financial affairs is critical in achieving an equitable division.

Valuing Cryptocurrency for Division

Once cryptocurrency assets are identified, determining their value is the next crucial step. Valuing cryptocurrency can be challenging due to its volatility. The price of digital assets can fluctuate dramatically, sometimes within a matter of hours.

To accurately value cryptocurrency for divorce law settlements, it’s advisable to establish a date for valuation. This could be the date of separation or the date the divorce is filed. In Pennsylvania, it’s common to use the date of separation for asset valuation. 

Both parties may agree to use the same date for consistency, which can help facilitate a smoother division process.

Additionally, obtaining professional appraisals from financial experts who specialize in cryptocurrency can provide an objective assessment of the asset’s value. This can be especially helpful if one spouse is contesting the valuation or if the couple holds significant amounts of cryptocurrency.

Tax Implications of Cryptocurrency

One often overlooked aspect of cryptocurrency in divorce settlements is the tax implications. In Pennsylvania, as in other states, the Internal Revenue Service (IRS) treats cryptocurrency as property for tax purposes. This means that any gains realized from selling or exchanging cryptocurrency may be subject to capital gains tax.

When dividing cryptocurrency assets in a divorce settlement, both parties should consider the potential tax consequences. If one spouse retains a cryptocurrency asset that has appreciated in value, they may be responsible for paying taxes on the capital gains when they eventually sell or exchange it.

It’s essential to include tax considerations in divorce negotiations to avoid unexpected financial burdens after the settlement. A comprehensive understanding of these implications can help both spouses make informed decisions regarding the division of assets.

Strategies for Dividing Cryptocurrency in Divorce Settlements

Dividing cryptocurrency assets in a divorce can present unique challenges. However, several strategies can help facilitate an equitable distribution while addressing potential issues.

1. Equal Division of Assets

One approach is to divide the total value of the cryptocurrency equally between both spouses. If one spouse has a significant amount of cryptocurrency, they may be required to transfer a portion of their holdings to the other spouse to achieve a fair division.

This approach allows both parties to have a stake in the digital assets while maintaining a balanced distribution of overall property.

2. Offset With Other Assets

Another strategy involves offsetting cryptocurrency holdings with other marital assets in divorce law. For instance, if one spouse has a considerable amount of cryptocurrency, they may retain it while the other spouse receives additional value in the form of cash, real estate, or other investments. 

This method can be advantageous when one party is more familiar with managing cryptocurrency while the other prefers more traditional assets.

3. Stipulated Agreement on Cryptocurrency Management

If both spouses are open to it, they can reach a stipulated agreement regarding how to manage their cryptocurrency assets post-divorce. This might involve agreeing to hold onto the cryptocurrency for a set period before making any decisions regarding its sale or transfer. 

This approach allows both parties to monitor market conditions and make informed choices in the future.

Protecting Your Interests During Divorce

Given the intricacies surrounding cryptocurrency and divorce law, it’s essential for individuals going through a divorce to take proactive steps to protect their interests.

1. Work With a Knowledgeable Attorney

Engaging an attorney who understands both divorce law and the nuances of cryptocurrency is critical. An experienced attorney can provide guidance on identifying assets, traversing valuation, and addressing tax implications effectively. They can also assist in negotiating a fair settlement that considers both parties’ interests.

2. Document Everything

Keeping thorough records of all cryptocurrency transactions, including purchases, sales, and trades, can be invaluable during divorce proceedings. Documentation can provide clarity regarding the asset’s value and help establish the timeline of investments. 

It’s also advisable to gather any pertinent financial statements or documents related to cryptocurrency holdings. Your divorce attorney can help guide you.

3. Stay Informed

As cryptocurrency continues to evolve, staying informed about market trends and regulatory developments is essential. Understanding how changes in cryptocurrency may affect divorce settlements can help individuals make informed decisions.

Handling Disputes Over Cryptocurrency

In some cases, divorce law disputes may arise regarding the division of cryptocurrency assets during divorce settlements. These disputes can stem from disagreements over asset valuation, hidden holdings, or differing opinions on management strategies.

If disputes occur, mediation or arbitration may be viable options for resolution. These alternative dispute resolution methods can help both parties reach an agreement without the need for lengthy court proceedings. 

In many cases, they provide a more collaborative and less adversarial approach to resolving issues, allowing for a more amicable outcome.

If mediation or arbitration is unsuccessful, court intervention may be necessary. In such instances, it’s essential to have a strong legal representative who can advocate for your interests and present your case effectively.

Contact Us for the First Steps

At the Law Office of MariAnn Hathaway, we recognize the challenges posed by cryptocurrency and are committed to helping our clients address these issues with confidence. Our firm's calm demeanor and personal touch have helped bring peace to countless clients, and we can do the same for you. We’re proud to serve Canonsburg, Pennsylvania, and throughout Washington County. If you need the aid of a divorce lawyer, reach out to us today to get started.