How do divorcing spouses deal with cryptocurrency?

On Behalf of | Oct 4, 2021 | Divorce

As investments and monetary assets, cryptocurrencies are relatively new. The various digital assets on the crypto market have gained notoriety among many investors and traders thanks to their potential for rapid value increases. Colorado spouses may wonder how much cryptocurrency a spouse holds, especially when considering a divorce. Holding cryptocurrencies in anonymous accounts could lead to someone hiding assets during divorce proceedings.

Examining cryptocurrency holdings when divorcing

When a spouse considers divorce, it may seem stressful to worry about “auditing” the financial holdings of both partners. Things become more complicated for those who have no understanding of cryptocurrency and its value. Some may not realize how easy it could be to hide assets in an anonymous wallet.

Someone could purchase crypto on a non-anonymous platform, but the other spouse might not even know about the holdings. Ultimately, if a spouse suspects that the other partner has hidden crypto assets, it’s important to investigate.

The challenging nature of cryptocurrency divisions

Dividing cryptocurrency assets may come with unexpected complexities. Cryptocurrency is often wildly volatile, so assets worth significant money could become worthless relatively quickly.

Divorce settlement negotiations may take some time. The process could enter mediation when the parties don’t agree to terms. During that time, valuable cryptocurrency holdings might drop in value immensely, potentially changing the negotiation dynamics.

Tax issues might further complicate the situation. The IRS asks taxpayers to disclose whether they trade in crypto on a tax return. Capital gains on crypto sales may lead to higher tax bills. If one spouse attempts to dodge taxes on a joint return by failing to disclose cryptocurrency profits on a joint return, the other spouse could face problems if an audit takes place.

Spouses may want to learn more about cryptocurrency trading when dividing their assets in a divorce. The relative newness of crypto may add challenges to divorce settlements.