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How is Cryptocurrency Divided in Divorce?


In theory, cryptocurrency should be divided in divorce like any other asset under Nevada’s community property laws. In reality, however, so many complicating factors apply that couples and their attorneys often need to take extra steps when one or both spouses hold interests in cryptocurrency, non-fungible tokens, or other virtual assets.

Cryptocurrency is Hard to Track

Despite the name, cryptocurrency is not actually currency but is a type of code or software regulating the production of a form of virtual currency. When something is virtual it may seem or appear real, but it is only a replica.

Transactions in cryptocurrency are recorded on a type of database referred to as a blockchain. Units of cryptocurrency are just numbers on the blockchain and they are tracked by their private key. If someone doesn’t know the private key or the owner of the currency loses the private key, it can be effectively impossible to access the asset or trace it to the owner.

Many people who hold cryptocurrency never know their actual private key. Instead, they hold their assets in a virtual wallet, and the virtual wallet provider encodes the private key in a password format that is easier for the user to record and remember. In fact, when crypto investors use an exchange wallet such as Coinbase or a custodian, those companies actually hold the private keys and control the funds on behalf of users.

All of these features can make it easy for a spouse to hide or lose cryptocurrency. Unlike funds stored in a traditional bank account, a divorce attorney cannot simply request records from the bank. However, it is possible for a forensic accountant working with an attorney to uncover crypto assets. For instance, an attorney can subpoena a cryptocurrency exchange for information. If it turns out that a spouse is hiding assets, they lose credibility very quickly, and decisions are not likely to go their way for the rest of the case.   

The Volatile Value of Cryptocurrency Makes it Hard to Divide Fairly

All commodities change in value over time, but the volatility of cryptocurrency is in another league entirely. Trying to assess the value involves picking not only a date but an exact time and the right standard for comparison. 

If instead a couple chooses to divide cryptocurrency without valuing and transferring the value to another measurement such as U.S. dollars, then they face added complications and privacy concerns due to the nature of crypto.

In addition, the IRS is now monitoring cryptocurrency transactions, so tax implications should be taken into account when dividing cryptocurrency in divorce.

Work with a Divorce Attorney Who Understands How to Protect Your Cryptocurrency Interests

If you hold cryptocurrency or you suspect your suspect owns any type of virtual assets, the best way to protect your interests is to ensure that your divorce attorney understands how to locate, value, and manage these critical assets and how to account for potential liability such as tax consequences. The experienced team at Naimi Mullins Law Group is ready to assist with all types of complicated assets, including crypto. Contact us for a confidential consultation to learn how we can help you reach your objectives.

The post How is Cryptocurrency Divided in Divorce? appeared first on Naimi Mullins Law Group.

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