Cryptocurrency Challenges and Potential Tax Implications in Divorce

Digital assets such as cryptocurrency have grown in popularity. As a result, they increasingly play a role in divorce proceedings. In Bucks County and beyond, couples are finding that these new forms of wealth present unique challenges when marriages come to an end.

If you or your spouse hold cryptocurrency and are pursuing a divorce, talk to a Bucks County family attorney about how these assets will be divided. By working with legal and financial professionals, you can protect your interests and make informed decisions as you move toward a new phase of your life.

Valuation Challenges for Cryptocurrency

In Pennsylvania, marital assets are divided fairly, though not necessarily equally, when a couple divorces. This includes traditional assets like property, retirement accounts, and bank savings. But unlike traditional financial accounts, which have easily discernible values on a set date, cryptocurrency prices can fluctuate wildly.

• Timing of valuation. The value of cryptocurrency is highly dependent on the date and time it is appraised. Courts in Pennsylvania may use different dates for the valuation of assets, but with digital assets, even a few hours can lead to a significantly different outcome. For example, Bitcoin could be worth $30,000 one day and drop to $25,000 the next. Both spouses need to agree on when the cryptocurrency will be valued, and this can add complexity to the process.
• Misreported assets. Another challenge is that cryptocurrency is decentralized and often anonymous, meaning it can be easily hidden. Unlike traditional bank accounts, which have clear records, tracking down cryptocurrency assets can require subpoenas and forensic experts. A spouse attempting to conceal assets may transfer or hold cryptocurrency in multiple wallets across various platforms.

Plus, dividing cryptocurrency assets during a divorce can also carry significant tax implications.

Capital Gains and Proper Tax Reporting

Cryptocurrency is considered property by the IRS, meaning that transferring or selling it may trigger capital gains taxes. Assets that have appreciated in value during the course of a marriage may be subject to capital gains taxes when sold. The spouse receiving the cryptocurrency as part of the divorce settlement may need to pay taxes on the difference between the original purchase price and the sale price. This tax burden can be significant, particularly if the cryptocurrency was acquired at a low cost.

Both parties must ensure they comply with tax laws when reporting the division of cryptocurrency. The IRS has been increasingly vigilant about tracking digital assets, and failure to properly report the transfer or sale of cryptocurrency could lead to penalties. Consult with a tax professional to understand how your cryptocurrency holdings will be treated under current tax laws.

An experienced Bucks County family attorney can work to ensure that digital assets are appropriately valued. They can also coordinate with tax professionals to help mitigate the potential tax implications.

Do you own cryptocurrency? If a lot of your worth is tied up in digital assets, talk to the knowledgeable legal team at Kevin L. Hand, P.C. about how to secure a fair divorce settlement. Call 215-968-6602 for a confidential consultation.