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The Modern World Has Greatly Complicated Divorce
Divorce has never been a simple process. Dealing with issues like property division, alimony, child support, and child custody can be complicated and stressful. Unfortunately, the divorce process has only gotten more challenging due to new technologies. For instance, many people don’t know how to divide cryptocurrency and other complex investments during divorce.
The good news is that asset division laws are relatively stable — regardless of the investment in question. For instance, these investments are typically divided in a manner that the courts deem fair in Utah and other equitable distribution states. The real complications arise when you consider valuation, disclosure, methods of division, and other critical matters.
Identifying Marital vs. Separate Property
Dividing crypto and other unusual investments during a divorce may sound simple at first due to the rules laid out under family law. That’s because the first step is the same first step used with any other property, and that’s to distinguish between marital and separate properties. Marital property is composed of any assets acquired during the marriage.
Marital property can include cryptocurrency, NFTs, and other complex investments purchased while married. Separate property is composed of assets owned before the marriage, inherited, or received by an individual spouse as a gift. During a divorce, marital property is subject to division. Separate property is typically safe unless it was commingled with marital assets.
Valuation of Cryptocurrency
One cannot learn how to divide cryptocurrency during a divorce without understanding the volatile nature of the asset. Unfortunately, the massive fluctuations in value can present unique challenges during asset valuation.
Expert appraisers may be necessary to determine an accurate value, so it’s typically wise to hire an attorney who maintains professional relationships with financial planners. Courts will usually use the value of these digital coins at the time of the divorce filing to determine value.
During this process, both parties must disclose wallet addresses, transaction histories, and exchanges used to ensure transparency. Unfortunately, digital assets offer a prime opportunity for spouses to hide assets if they’re not acting in good faith.
Complexities of Other Non-Traditional Investments
Dividing assets during a divorce when you own cryptocurrency can be a difficult endeavor. However, crypto coins are not the only unique investment that can complicate the divorce process. Stocks, options, NFTs, and other non-traditional investments open the door for disputes over value and difficulties in dividing assets fairly.
To ensure fairness when dealing with these types of investments, it’s important to bring in a financial expert to assess their value. This is another critical reason why individuals going through a divorce should hire an attorney who brings in certified financial planners, forensic accountants, and other financial professionals when necessary.
Unfortunately, proper valuation and division are not the end of the complexities inherent to these investments — mostly thanks to taxation issues.
Dealing With the Tax Implications
The IRS handles cryptocurrency in unique ways. Until recently, such investments weren’t even reportable. However, the world has become more accepting of digital coinage and other non-traditional investment categories. Therefore, you must understand the tax implications.
For instance, you’re likely to see capital gains taxes if assets must be sold in order to divide them fairly. During this process, crypto and other investments held less than a year will be taxed as though they were regular income. This can become incredibly costly.
However, there is no immediate tax for transferring cryptocurrency and other investments between spouses as part of a divorce settlement. However, the tax basis will also transfer. This means the receiving spouse will inherent the tax liability for the asset once they sell it.
Methods of Division
Anyone who understands how to divide cryptocurrency during a divorce can tell you that identifying the appropriate method of division means everything. There are several options to divide non-traditional investment assets, and the right choice in your situation will be highly dependent on your individual circumstances.
These are your basic options:
- In-kind distribution: The actual cryptocurrency or asset is split between the parties. This typically does not trigger a taxable event
- Buyout: One party keeps the asset and compensates the other party with equivalent value from other marital property
- Sale and split: The asset is liquidated so that the proceeds can be divided fairly. This will trigger taxation
Speaking with legal professionals and financial experts to decide the best course of action is in your best interest. Unfortunately, the complicated nature of these assets can make a divorce more difficult than expected. In fact, some former couples even end up agreeing to revisit asset division if cryptocurrency or other assets significantly appreciate after the divorce.
Clearly, many complicated matters are involved here – which leaves many people questioning whether they should seek help.
Should You Hire an Attorney?
When someone’s marriage is coming to an end, they’ll often question whether they need to hire an attorney. Unfortunately, there’s a lot of misinformation out there. For instance, many people believe that you only need a lawyer during a contested divorce. Such misguided beliefs can result in unexpected outcomes — even for individuals desiring an amicable split.
Put simply, it’s always a wise idea to seek legal counsel during a divorce. However, this becomes less of a recommendation and more of a necessity when complex investments are involved. Knowing how to divide cryptocurrency during a divorce — or any other non-traditional investments — is not something you can easily grasp with a bit of online research.
You need an experienced legal professional who partners with financial experts. At the RCG Law Group, that’s precisely what you’ll find. Contact us at 385-503-3663 to schedule your confidential consultation.
