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How Is Cryptocurrency Handled in a Texas Divorce?

An increasing number of couples in Texas have cryptocurrencies among their assets. Just like traditional assets like real estate, stocks, or bank accounts, cryptocurrency holdings must be divided in the event of a divorce. But how does Texas divorce law handle the division of cryptocurrency assets owned by spouses?

Navigating Cryptocurrency in Divorce: A Comprehensive Guide

In recent years, cryptocurrency has become popular for families to build and store wealth. However, the decentralized and largely unregulated nature of cryptocurrencies means that handling ownership of cryptocurrencies in divorce can become a complex matter. Divorcing couples may struggle to determine whether cryptocurrency assets qualify as marital or separate property. Couples may also have disputes over valuing cryptocurrency assets that do not have a liquid trading market that can provide a reliable market-based price. Finally, legal challenges and complexities may arise when a spouse or the court discovers their other spouse has concealed cryptocurrency assets.

Understanding your rights and obligations regarding cryptocurrencies in divorce can help make the property division process less stressful and ensure that you can protect your financial rights and interests.

Cryptocurrency as a Marital Asset

Cryptocurrency, like other assets such as stocks, real estate, or retirement accounts, may qualify as a marital asset subject to division in divorce. As a general rule of thumb, all property that a couple acquires during their marriage becomes marital property. However, certain exceptions to this rule may make some property acquired during marriage separate property not subject to division in divorce, such as inheritances or expressly designated separate gifts. Thus, cryptocurrency assets acquired by either spouse during their marriage will become marital assets subject to division. However, if a spouse received cryptocurrency as part of an inheritance or an exclusive gift, those assets would remain separate property and not subject to property division in divorce.

Furthermore, Texas operates a “community property” system for marital property. Under the community property system, the law considers both spouses to own equal shares of marital property. Thus, Texas courts in divorce cases must divide marital property evenly between spouses, including cryptocurrency assets that qualify as marital property. For example, if a divorcing couple had ten Bitcoins in their marital estate, the court would divide those Bitcoins evenly, with each spouse receiving five or the equivalent value of five.

Texas’s community property system differs from most other states in the U.S., which use an equitable distribution system of property division. In equitable distribution states, courts must divide property properly fairly—though not necessarily evenly—between spouses based on various factors, such as the duration of the marriage, each spouse’s contributions toward acquiring or maintaining marital assets, and the spouses’ respective earning capacities and financial resources.

Discovery and Disclosure of Digital Assets

Identifying cryptocurrencies and other digital assets owned by spouses remains one of the primary challenges of property division in divorce. Because cryptocurrencies operate through blockchains in a decentralized network of cryptocurrency holders’ computers, locating or tracing cryptocurrency assets can prove exceedingly difficult. Furthermore, the anonymous nature of many cryptocurrencies makes determining who owns a unit or coin of a cryptocurrency challenging.

In property division in divorce, the law requires spouses to disclose all their assets so that the couple and the court can determine which assets qualify as marital property and divide them accordingly. However, spouses may inadvertently or intentionally fail to disclose their ownership of cryptocurrencies. For example, a spouse who mined a cryptocurrency or bought it for pennies years ago may have forgotten they owned the assets, which may have grown in value over the years. Alternatively, a spouse may have mined or purchased cryptocurrencies without their spouse’s knowledge and willfully fail to disclose those holdings in their financial disclosures in a divorce proceeding.

Unfortunately, due to many cryptocurrencies’ anonymous and decentralized features, discovering a spouse’s hidden holdings may prove challenging. However, the other spouse may have avenues for uncovering hidden cryptocurrency assets, such as undertaking forensic accounting that may discover a spouse’s holdings through bank transfers to purchase cryptocurrencies on an exchange or a spouse’s disclosure of cryptocurrency holdings on tax returns.

Challenges in Dividing Cryptocurrency

Dividing cryptocurrencies in a Texas divorce can create significant issues and obstacles for couples, such as:

Locating assets: Spouses may have to undertake significant forensic accounting to locate suspected cryptocurrency assets hidden by their other spouses.
Valuing cryptocurrency holdings: Although more popular cryptocurrencies like Bitcoin and Ethereum have generally accepted market values due to the robust trading in those cryptocurrencies, valuing other cryptocurrencies may require obtaining expert appraisals.
Dividing holdings: Sometimes, dividing cryptocurrencies that qualify as marital assets may involve divvying up coins held by a divorcing couple; for example, if a couple owns ten Bitcoins, each spouse may take five Bitcoins. However, the spouse with the coins may not want to hand some of them over, or the other spouse may not want to receive their half of the marital estate partly in cryptocurrencies. Spouses may agree to exchange other marital property of equivalent value. However, determining the value of the other spouse’s half of the couple’s cryptocurrency holdings may prove complicated if a cryptocurrency does not have a stable, liquid trading market.
Anticipating tax implications: Selling cryptocurrencies as part of property division in divorce may trigger tax consequences for couples, as any growth in the value of a cryptocurrency holding following its acquisition constitutes taxable capital gains. Selling assets may result in a divorcing couple giving up a significant portion of their wealth in cryptocurrencies to taxes. Furthermore, transferring cryptocurrency units between spouses as part of the property division process may also trigger tax implications.

Contact Balekian Hayes Today

The very nature of cryptocurrencies like Bitcoin presents certain challenges in the event of a divorce. Don’t make the mistake of trying to overcome these challenges alone. Instead, get the experienced legal guidance of a high-net-worth divorce attorney you need to protect your rights and interests. Contact Balekian Hayes, PLLC, today for a confidential consultation with a knowledgeable family law attorney to learn more about the complexities and obstacles posed by cryptocurrency and divorce.

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