Cryptocurrency and other digital assets have become increasingly common in divorce cases. Although these assets may not appear in a traditional bank or investment account, they can still have significant value and may need to be considered when dividing marital property.

Whether you own cryptocurrency or believe your spouse may have digital assets, identifying and valuing them is an important part of understanding the complete financial picture.

What Counts as a Digital Asset?

Digital assets can include:

• Cryptocurrency, such as Bitcoin or Ethereum
• Stablecoins
• Non-fungible tokens, commonly called NFTs
• Assets held through cryptocurrency exchanges
• Assets stored in digital or self-custody wallets

The IRS generally treats digital assets as property for federal tax purposes. Transactions involving cryptocurrency may create taxable income, gains, or losses. (IRS)

Is Cryptocurrency Considered During Divorce?

Cryptocurrency should not be overlooked simply because it is held digitally or has not been converted into cash. These questions are similar to those raised in business valuation cases, where the timing and source of an asset’s acquisition can affect how it is classified and divided.

In a Massachusetts divorce, the court may consider property owned by either spouse when determining an equitable division of the marital estate. The court considers factors such as the length of the marriage, each spouse’s income, assets, liabilities, needs, and opportunities to acquire future income and property. (Massachusetts General Court)

Important questions may include when the cryptocurrency was acquired, how it was purchased, whether marital funds were used, and whether its value changed during the marriage.

How Is Cryptocurrency Identified?

Digital assets may be held through an exchange, a mobile application, a hardware wallet, or another type of account. Relevant records may include:

• Exchange account statements
• Bank or credit card transactions
• Tax returns and tax forms
• Wallet addresses
• Transaction histories
• Records of cryptocurrency purchases or transfers
• Emails confirming account activity

Because cryptocurrency can be transferred between accounts or wallets, tracing the ownership and movement of assets may require careful financial analysis.

Both spouses are expected to provide complete and accurate financial information during the divorce process. Attempts to conceal or transfer assets can create serious legal and financial consequences.

How Is Cryptocurrency Valued?

Cryptocurrency prices can change significantly over a short period of time. As a result, the date used to value the asset can have a substantial effect on the amount included in a divorce settlement. Equity-based compensation, such as RSUs and stock options, raises a similar timing issue, since their value can shift significantly between the grant date and the date of divorce.

The parties may need to agree on a specific valuation date or create an arrangement that accounts for future price changes.

The original purchase price, commonly called the tax basis, is also important. Two cryptocurrency accounts with the same current value may have very different potential tax consequences depending on when and how the assets were acquired.

How Can Cryptocurrency Be Divided?

Cryptocurrency may be addressed in several ways. The spouses may transfer an agreed-upon amount of cryptocurrency, sell the asset and divide the proceeds, or allow one spouse to retain it while the other receives different marital property.

Before selecting an approach, the parties should consider transaction costs, security, price volatility, and possible taxes. The IRS requires taxpayers to report applicable income, gains, and losses from digital-asset transactions. (IRS)

Any agreement should clearly identify the assets involved, the valuation date, responsibility for taxes and fees, and the process for completing the transfer or sale.

Speak With a Massachusetts Divorce Attorney

Cryptocurrency often appears alongside other complex holdings in high-net-worth divorce cases, adding complexity to property division, financial disclosure, valuation, and tax planning.

Attorney Karla Mansur helps clients identify and understand complex financial assets and develop a strategy based on their individual circumstances.

Contact Mansur Law Group here to learn more about protecting your financial interests during the divorce process.

This article is for general informational purposes only and is not legal advice.