Will I Lose My Bitcoin During My Divorce?
Cryptocurrency is a type of digital money in the form of virtual coins or tokens. Cryptocurrency arose from a desire to decentralize financial systems and avoid government control and manipulation. Though there were cryptocurrencies before Bitcoin, Bitcoin was the first to really take hold. Today, most cryptocurrencies are modeled on Bitcoin. Non-Bitcoin cryptocurrencies are also referred to as altcoins. According to some reports, over 20 million Americans own cryptocurrency.
The ten largest cryptocurrencies are:
- USD Coin
- Binance Coin
- Binance USD
As more and more people invest in cryptocurrencies, we are starting to see more and more divorce cases that must deal with cryptocurrency investments during property division. However, because cryptocurrency is still relatively new, there are a lot of questions surrounding how these assets are handled during divorce cases.
So, are cryptocurrencies subject to property division? Generally speaking, yes, your Bitcoin or altcoin holdings may be subject to property division if they are identified as a shared, marital asset.
Is Bitcoin Considered Property in a Legal Sense?
Because Bitcoin and other cryptocurrencies only exist virtually, many people have asked whether they can be considered as a type of property or asset. According to the IRS, if a virtual currency has an “equivalent value in real currency” or “acts as a substitute for real currency,” it is considered a convertible virtual currency. Selling virtual currencies or holding cryptocurrency as an investment will likely carry tax liability. Consequently, cryptocurrencies like Bitcoin are taxable.
They are also considered a dividable asset in a divorce.
The Basics of Property Division in Texas
Texas is a community property state. This means that when a couple divorces, any property acquired during their marriage will have to be divided equally between them (with a few exceptions). Consequently, each party has a 50% stake in their shared property. The same principle applies to shared debts acquired during the marriage.
Examples of shared marital property include:
- Bank accounts
- Investment accounts
- Retirement accounts
- Real estate
Examples of shared debts include:
- Credit card accounts
- Personal loans
Property acquired before the marriage is generally considered separate property and therefore not subject to property division. But what happens if separate property becomes commingled with marital property? This “mixed” property can be difficult to deal with during property division. However, generally speaking, if separate property is put into a joint account or used on household expenses, it becomes community property.
So, what does this mean for cryptocurrencies? If your Bitcoin investment were acquired after your marriage, it would be considered community property and therefore must go through the property division process. If obtained prior to marriage and commingled with your household funds, it will also likely be considered community property during divorce.
Cryptocurrency & Hidden Assets
Going through a divorce is incredibly stressful, and sometimes people resent the fact that they must divide their assets with their spouse. Unfortunately, this can lead to one spouse hiding assets in an attempt to prevent those assets from the property division process. It tends to happen most when the couple is on very acrimonious terms or in high-asset divorces. With the rise of cryptocurrency, tracking hidden digital funds has become more complicated.
In cases where there are suspected hidden assets, the other spouse’s attorney will likely have to file a subpoena of the suspected spouse’s electronic devices to try and trace the hidden assets. These cases may also require hiring forensic experts to dig into the suspected spouse’s digital history, looking for signs of the hidden assets.
Tracking down hidden cryptocurrencies during a divorce can be very expensive and time-consuming. Before you proceed, you should discuss the situation with your attorney to determine the best path forward.
How to Protect Your Crypto Investment from Divorce
Dealing with cryptocurrency can be challenging, but you may have options to preserve your investment. If you are going through a divorce and are concerned about having to divide your cryptocurrency investment, reach out to the Law Firm of Johnson & Gaskill PLLC for guidance. Similarly, if your spouse has invested in cryptocurrency or you are worried that your spouse is using crypto to hide assets, we can help you, too. We are experienced divorce attorneys who can help you develop a strong divorce strategy. When you work with us, we will review your case and identify all your legal options.
Call us at (832) 210-1698 to schedule a confidential consultation or send us a message online.