How to Determine the Value of Cryptocurrency Investment in a Divorce
When couples divorce in Pennsylvania, their marital assets are divided according to equitable distribution. This means the division of property and debts is fair to both parties, but not necessarily equal. In the discovery phase of a divorce, each party is required to disclose all assets to the other party. It is important to ask about cryptocurrency in discovery, as this type of asset can be more easily hidden than others.
What Is Cryptocurrency?
Cryptocurrency is a type of digital asset. It is digital currency that can be used to purchase goods and services. Cryptocurrency uses an online ledger with strong cryptography (secure information and communication techniques) to secure transactions completed online. These unregulated currencies are often traded for profit, and speculators can drive prices upward. They work with a secure, decentralized technology known as blockchain, which records and manages transactions. Many companies have issued their own currencies, known as tokens, which are traded specifically for goods or services those companies provide.
Types of Cryptocurrencies
Some of the most popular cryptocurrencies that should be evaluated in the property division of a divorce include:
- Bitcoin Cash
- Ethereum Classic
- Binance Coin
What Is the Challenge With Valuing and Dividing Cryptocurrency in a Divorce?
When marital assets are divided in Pennsylvania, they are not each split down the middle. When there is full disclosure on both sides and all marital assets are known, the sum total is then divided fairly. There are two issues involved when cryptocurrency makes up a part of the marital assets:
- Cryptocurrency is easier to hide and more difficult to track than other types of assets. If you suspect your spouse has invested in cryptocurrency and failed to disclose it in an effort to hide marital assets, it may be necessary to bring in forensic experts to search your spouse’s devices and financial records for evidence. Although it may require more expertise, there are ways to trace Bitcoins and other cryptocurrencies.
- Cryptocurrency fluctuates in value. The value of cryptocurrency can fluctuate dramatically. There may be tremendous, sudden gains followed by major losses. Once it is established that cryptocurrency is a marital asset to be divided in a divorce, the value of that asset can change significantly before the process is complete and the divorce is finalized. One option is for the spouses to agree to value cryptocurrency based on its value at the time of distribution, at which time the spouse who owns the virtual currency transfers half to the other spouse.
What Are the Tax Implications of Cryptocurrency in a Divorce?
Virtual currency is treated as property by the federal government and subject to capital gains tax, as stated in IRS Notice 2014-21. The IRS has begun sending letters to people with cryptocurrency transactions who may have failed to pay the taxes due. Tax consequences of cryptocurrency should be considered in valuing and dividing assets in a divorce.
Why Do You Need a Lawyer?
Equitable distribution of marital assets in a Pennsylvania divorce can be a complicated and potentially contentious process, particularly when cryptocurrency is involved. The court considers several factors in determining equitable distribution. An experienced Montgomery County divorce lawyer can help ensure all marital assets are located, accounted for, and correctly valued, help you reach a settlement agreement with your spouse, or argue persuasively to the court on your behalf if you are unable to settle out of court.
Sheryl R. Rentz has more than twenty years of experience. Our firm was founded in 1992. We can guide you, step by step, through the challenging processes of a divorce, including equitable distribution of marital assets. If you are facing divorce, call us at (610) 645-0100 to schedule a free consultation.