Dividing Cryptocurrency in Divorce: What You Need to Know

More people own cryptocurrency, so naturally, cryptocurrency has become an increasingly common asset in divorce cases. While it is becoming more commonplace, it can present unique challenges in divorce proceedings. This is because, unlike traditional assets such as bank accounts or real estate, cryptocurrency is decentralized, volatile, and often stored in digital wallets or on private exchanges. These characteristics make valuation, identification of the assets, and the equitable division far more complex. If you or your ex owns cryptocurrency, understanding how it is valued, identified, and divided in Massachusetts divorce proceedings is essential

What Is Cryptocurrency?

Cryptocurrency is a form of digital or virtual currency that relies on cryptographic techniques to secure transactions, control the creation of new units, and verify the transfer of assets. People keep track of their cryptocurrency in digital wallets, which store cryptographic keys that allow users to access and transfer their assets. Cryptocurrencies operate on decentralized networks, typically using blockchain technology. A blockchain is a distributed ledger that records every transaction across a network of computers. You may have heard of Bitcoin and Ethereum, which are types of cryptocurrencies. However, thousands of alternative coins exist. Each of these has its own features. 

How Is Property Divided in Massachusetts?

Property or assets include income, assets, and property acquired during the marriage. In dividing property, Massachusetts applies the equitable distribution principle. This means that the couple’s property is divided fairly, though not necessarily equally. In Massachusetts, there is no presumption that the property must be divided equally, and no specific formula is required to achieve an equitable distribution.

Some key points about property division:

• Equitable does not necessarily mean equal; the court strives for fairness based on circumstances
• Judges consider factors like marriage, length, age, health, income, earning capacity, and standard of living
• Financial contributions to the marriage, business interests, and tax consequences are also evaluated.
• Courts may account for asset dissipation or other relevant factors affecting fairness. 
• Judges may also consider any other factors deemed fair and appropriate. 

Why Cryptocurrency Can Be Challenging In Divorce Cases 

The division of marital assets in divorce proceedings is often complex. However, cryptocurrency can vastly increase the difficulty for several reasons. Here are the main reasons why cryptocurrency can complicate asset division in divorces.

Disclosure

Cryptocurrency can be held anonymously in private wallets or offshore exchanges. This makes it much easier for a spouse to conceal holdings compared to traditional bank accounts or investment assets. Because digital currencies can be transferred quickly and without leaving a paper trail, one spouse may move assets without the other’s knowledge. This can make it challenging to know what a spouse has to make a fair division of assets. 

Valuation

Valuation is one of the most challenging aspects of dividing cryptocurrency in a divorce because digital assets are highly volatile, with prices often fluctuating dramatically in a single day. Arriving at an accurate valuation requires considering multiple points in time, including the cryptocurrency’s value at the time it was purchased or received, at the time the couple separated, and at the time the court makes a final determination. 

Expert Testimony 

Because of these issues, expert testimony is often crucial. However, it still is challenging, and this can add significant cost to the divorce. Experts are professionals who can bring technical knowledge that extends far beyond traditional financial analysis. Forensic accountants, digital asset investigators, and blockchain analysts can help identify hidden wallets and trace transfers across multiple exchanges. They can also help with valuation. They can analyze market data to provide a fair and balanced assessment of a cryptocurrency portfolio, taking into account not only current market conditions but also historical price fluctuations and investment patterns.

How Exactly Does One Divide Cryptocurrency?

With real cash, it is easy to understand how parties might divide up money. Dividing up cryptocurrency seems more complicated. There are several approaches one may use to divide cryptocurrency:

Direct Transfer

• Assets are transferred from one wallet to another, assuming the receiving spouse understands cryptocurrency operations and risks.
• Cooperation of the spouse controlling the private keys is required

If the receiving spouse does not understand cryptocurrency, steps should be taken to verify that the transfer has been successfully completed.

Offsetting with Other Assets

• Instead of transferring cryptocurrency, one spouse may receive cash, real estate, or other marital assets of equivalent value.
• This can simplify division, especially for spouses unfamiliar with digital currencies.
• However, cryptocurrency volatility means its value could rise or fall after division, affecting perceived fairness. 

Speak With a Massachusetts Divorce Attorney Who Understands Digital Assets 

Dividing digital assets such as cryptocurrency in a divorce can be complex, and attempting to navigate these issues without guidance can lead to costly mistakes or unfair outcomes.  A Massachusetts divorce attorney with experience in digital assets can help ensure a fair division of cryptocurrency and other digital holdings.