Eschbacher & Eschbacher
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How does cryptocurrency factor into divorce settlements?

On Behalf of | Oct 30, 2021 | Family Law |

Cryptocurrency investing and trading is not for everyone since these digital assets prove volatile. Some investors cast aside caution to invest in these assets and experience tremendous returns. There’s another potential benefit to crypto: anonymous wallets make “virtual money” hard to track. Anonymous activities might not only seek to hide earnings from tax agencies but also spouses. During divorce proceedings in Alaska, one spouse may worry that the other intends to hide money to avoid an equitable settlement. Dealing with such a situation might place additional burdens on an aggrieved partner.

Divorce and cryptocurrency complexities

Cryptocurrency’s volatile nature could confound divorce negotiations. For example, $300,000 in crypto might turn into millions or become worthless relatively quickly. One spouse might not want half of a partner’s crypto assets, preferring to gain full ownership of a home in trade for leaving the spouse all his or her crypto. The other spouse may or may not go for such an offer.

One spouse might know absolutely nothing about cryptocurrency, and a lack of insight may put that spouse at a disadvantage. Learning about crypto could become necessary when such assets become part of distribution settlement talks. A spouse may need additional time to understand the assets, which could drag out the divorce.

Worries about cryptocurrency holdings

Some spouses attempt to hide assets during divorce settlement negotiations. Tracking crypto transactions is not always easy as anonymous wallets aren’t likely to file tax-related paperwork. Those who overhear a spouse discussing cryptocurrency or who notice that an internet browser’s history shows visits to crypto websites might wish to probe further.

Additional concerns may center on tax issues since the IRS wants to track down those making huge profits on crypto and not reporting it. Figuring out who will cover tax debts related to crypto might also become vital when past joint returns face audits and debts.

Those choosing to split crypto assets may face additional complexities when a brokerage firm doesn’t hold the digital assets. Dealing with crypto during a divorce typically requires learning more and properly preparing.