How do divorcing spouses divide cryptocurrency?

How do divorcing spouses divide cryptocurrency?

On Behalf of | Aug 20, 2021 | Property Division |

Cryptocurrency draws attention because various digital assets present a dynamic and aggressive investment vehicle. “Virtual currency” could spike in value tremendously, and a relatively modest investment may reap huge rewards. Texas investors might not put significant funds into virtual wallets after learning about crashes. Cryptocurrency worth millions could become worthless without any market indicators, which could make divorce settlements challenging.

Evaluating cryptocurrency during a divorce

A married couple may have $200,000 in investment capital. Of that, $100,000 might be in bonds, while $100,000 is in cryptocurrency. While the bonds might only receive 2% in annual interest for another 12 years, the cryptocurrency comes with enormous speculation. In 12 years, it could be worthless or turn into millions of dollars. So, property division offers to split the assets with one spouse getting the bonds and one spouse receiving the cryptocurrency might be unacceptable to both parties.

The “newness” of digital assets brings some concerns. Did both spouses manage the cryptocurrency investments, or was one spouse making the sole decisions? If only one spouse understands cryptocurrency, the other spouse might benefit from hiring an advisor with cryptocurrency expertise. Negotiating a cryptocurrency settlement figure without fully understanding what the assets are or how volatile they may be could lead to regrettable decisions.

Further points about cryptocurrency and settlements

If cryptocurrency grew in value over the past several years, sales could result in a tremendous long-term capital gains tax. Short-term capital gains tax might come into effect when selling cryptocurrency at a profit shortly after buying it. Are both spouses prepared to handle the tax bill?

Cryptocurrency comes with several unique considerations. Investing in digital assets is not for everyone, so many avoid dealing with it. When crypto represents a substantial amount of marital property, dealing with it may be unavoidable in a divorce.