An estimated 20 million Americans have invested in cryptocurrency and the number keeps growing every day. People are attracted to highly volatile crypto assets because of their apparent potential to quickly deliver large gains. In a legal sense, cryptocurrency is an asset like other assets. It may be considered as marital or separate property during a divorce in Alabama. Unfortunately, many couples considering divorce don’t fully understand the complications associated with their investments in cryptocurrency.
What is Cryptocurrency?
Cryptocurrency is a digital form of currency that makes use of encryption algorithms to allow it to function as a digital accounting system as well. A digital wallet is used for accessing the cryptocurrency account. This can be cloud-based software or stored locally on a flash drive, computer, or mobile device. The wallet can be accessed using encryption keys for confirming the identity of the owner.
Many countries already allow cryptocurrencies as an alternative form of payment. There are several merchants that accept digital currencies, such as dogecoin and bitcoin for their products and services. Cryptocurrencies are set to gain wider acceptance.
Division of Crypto Assets During an Alabama Divorce
Dividing crypto-assets can be considerably more difficult as compared to splitting up other assets. This is because of the inherent market volatility of this digital asset. Cryptocurrencies have the capacity to double or triple within days or weeks only to crash and be worth next to nothing when the market cycle turns. There are several factors influencing the worth of cryptocurrency assets and it can be difficult to predict these factors, even with an expert.
Divorce in Alabama, whether contested or uncontested, is likely to take a considerable amount of time. It can be several months in most cases before the divorce is granted. This means that an initial valuation of the asset may prove to be hugely misplaced after a few days or months. The currency could significantly change in value. The time and money involved in reassessing the current worth of crypto assets can drag out an already time-consuming and complicated process.
Ways to Work Around Crypto Volatility
The fact that cryptocurrencies are not tied to any banks allows them to remain largely unregulated. The value of cryptocurrency divided during a divorce can be difficult to nail down. However, there are ways that divorcing couples can consider while dealing with the division of this highly volatile asset:
- You can liquidate the crypto assets at the start of the divorce proceedings to establish a set value
- Another way is to divide the assets in their cryptocurrency form and adjust the value as appropriate during the final settlement
Tax Consequences of Dividing Cryptocurrency Marital Assets
There are significant tax consequences to attaining assets such as cryptocurrency. This is because they have the potential for significant gains. Cryptocurrency value has been known to increase by as much as 5 times over a few years.
The IRS may require the spouses to pay capital gains on the increment if the assets are liquidated before distribution. You would need to pay taxes on the amount by which the cryptocurrency increased. Couples should make use of the post-tax value of the crypto asset being divided during settlement negotiations.
Transferring the Ownership of Crypto Assets in a Divorce
Dividing the assets in their current form may seem like a great idea. There can be equitable distribution without having to liquidate the cryptocurrencies. Moreover, it’s not as easy to transfer ownership of crypto tokens as with traditional assets.
Most cryptocurrency exchanges are new. They are not very familiar with transferring ownership while protecting private information, including the keys of the current owner. It is recommended that couples enlist a divorce attorney with a financial professional on the panel to ensure a safe and smooth asset transfer.
Tracing Hidden Cryptocurrency Assets
A major issue where cryptocurrency and divorce are concerned is hidden assets. Cryptocurrency is generally owned anonymously, which makes it difficult to trace. These assets don’t exist within the mainstream financial system. They can be easily hidden and become untraceable through traditional means.
Many spouses that want to hide assets use cryptocurrency and other digital modes. While tracking crypto assets is more challenging as compared to other financial assets, it’s still possible to do it with the help of a digital forensic expert. You should let your attorney know immediately if you suspect your spouse of hiding assets from you.
There is always a transaction history involved with cryptocurrency that goes back to a traditional mode of payment. It can be any financial situation, such as a credit card, bank, or PayPal. Divorcing spouses, in most situations, intentionally try to hide crypto assets and cover their tracks. Furthermore, there are ways to trace these assets.
Choose a Seasoned Family Law Attorney in Alabama
Cryptocurrency is a highly talked about asset with significant implications during a divorce. It is best to work with a knowledgeable and skilled divorce attorney when it comes to complicated financial issues, such as crypto assets in a divorce.
The divorce lawyers at Alsobrook Law Group have a thorough understanding and experience in dealing with property divisions involving cryptocurrency. We can help whether you are concerned about equitable distribution of marital assets, or your ex-spouse is trying to hide crypto assets. To schedule your free consultation, call us at 334-737-3718 or fill out this online contact form.