Dividing Cryptocurrency and Digital Assets in Divorce

As cryptocurrency and digital assets become increasingly common in personal and business finances, they are also playing a growing role in divorce proceedings. Dividing these assets can be complex due to their volatile nature, unique legal considerations, and lack of physical presence. If you or your spouse hold cryptocurrency, NFTs, or other digital assets, it’s essential to understand how these assets are handled during a divorce in New Mexico. At Genus Law Group, we help clients navigate the intricacies of dividing digital assets while protecting their financial interests.

Understanding Cryptocurrency and Digital Assets

Cryptocurrency, such as Bitcoin, Ethereum, and others, is a form of digital currency that operates on decentralized blockchain technology. Unlike traditional financial accounts, cryptocurrency holdings are not tied to a bank and often involve secure wallets with private keys.

Digital assets also include non-fungible tokens (NFTs), digital artwork, online businesses, intellectual property, and other virtual holdings that have real-world value.

These assets can pose challenges in divorce due to their lack of central oversight, fluctuating value, and the anonymity that some cryptocurrencies provide.

How Cryptocurrency and Digital Assets Are Treated in Divorce

In New Mexico, which is a community property state, all marital assets and debts acquired during the marriage are divided equally between spouses. Cryptocurrency and digital assets are treated like any other marital property and are subject to this division. However, the process of identifying, valuing, and dividing these assets requires specialized attention.

1. Determining Whether the Asset Is Marital or Separate Property

One of the first steps is establishing whether the cryptocurrency or digital asset is considered marital or separate property:

Marital Property: Assets acquired during the marriage are typically considered marital property, regardless of whose name they are under.
Separate Property: Assets owned before the marriage or acquired through inheritance or gifts are generally classified as separate property.

If you or your spouse purchased cryptocurrency during the marriage using joint funds, it is likely subject to division.

2. Valuing the Asset

Valuing cryptocurrency is more complex than valuing a traditional bank account due to its volatility. The value of Bitcoin or other cryptocurrencies can fluctuate significantly over days, hours, or even minutes. Courts may use the value on a specific date, such as the filing date for the divorce or another mutually agreed-upon point in time.

Other digital assets, like NFTs, require appraisals or expert evaluations to determine their fair market value.

3. Dividing the Asset

Once the cryptocurrency or digital asset has been identified and valued, it must be divided between the spouses. Options include:

Transferring a Portion: One spouse may transfer a portion of the cryptocurrency to the other spouse’s wallet.
Offsetting with Other Assets: The value of the cryptocurrency may be offset by awarding other marital assets, such as real estate or vehicles, to the other spouse.
Liquidation: In some cases, the couple may decide to sell the cryptocurrency and divide the proceeds.

Challenges in Dividing Cryptocurrency

Cryptocurrency and digital assets present unique challenges in the divorce process.

1. Tracking and Identifying Assets

Cryptocurrencies are stored in digital wallets and can be easily hidden or transferred. Unlike bank accounts, they do not have a traditional paper trail. If one spouse suspects the other of hiding cryptocurrency, forensic accounting or blockchain analysis may be necessary to uncover these assets.

2. Tax Implications

Transferring or selling cryptocurrency can trigger taxable events, including capital gains taxes. It’s important to understand the potential tax consequences before dividing these assets and to account for them in the division process.

3. Privacy and Anonymity

Some cryptocurrencies are designed to provide anonymity, making it more difficult to trace ownership. This can complicate efforts to identify and value marital assets.

4. Fluctuating Value

The volatile nature of cryptocurrency can make it challenging to agree on a fair division. For example, a cryptocurrency that is worth thousands of dollars today could lose half its value tomorrow.

Best Practices for Dividing Cryptocurrency in Divorce

If you or your spouse hold cryptocurrency or other digital assets, following these best practices can help ensure a smoother process:

1. Be Transparent

Both parties are legally required to disclose all assets during the divorce process. Failing to disclose cryptocurrency or digital assets can lead to legal consequences, including sanctions or a revised division of property.

2. Work with an Experienced Attorney

Dividing cryptocurrency requires a thorough understanding of both family law and digital asset management. An experienced attorney can help identify, value, and divide these assets while protecting your interests.

3. Consider Hiring Financial Experts

Forensic accountants or financial experts with experience in digital assets can help uncover hidden cryptocurrency, trace transactions, and provide accurate valuations.

4. Understand Tax Implications

Consult with a tax professional to understand how dividing cryptocurrency will affect your financial situation. This can help you make informed decisions about whether to transfer, liquidate, or offset the asset.

5. Secure Your Digital Assets

If you hold cryptocurrency, ensure your wallet is secure during the divorce process. Change passwords and update security measures to prevent unauthorized access.

How Genus Law Group Can Help

At Genus Law Group, we understand that digital assets add a layer of complexity to divorce proceedings. Our experienced family law attorneys are skilled in handling cases involving cryptocurrency and other digital holdings, ensuring our clients receive fair outcomes.

Comprehensive Support: We help identify, value, and divide digital assets while addressing tax implications and other challenges.
Strategic Advocacy: Our attorneys work to protect your interests and ensure a fair division of marital property.
Collaborative Approach: We collaborate with financial experts and tax professionals to provide you with well-rounded legal support.

Contact Genus Law Group Today!

Dividing cryptocurrency and digital assets in divorce requires specialized knowledge and careful planning. From identifying hidden assets to addressing tax implications, these unique holdings present challenges that require expert guidance. At Genus Law Group, we are committed to helping our clients navigate the complexities of family law with confidence and clarity. If you are facing a divorce and need assistance with cryptocurrency or digital assets, call us today at 505-317-4455 or Contact Us through our website to get the support you need.