How is Cryptocurrency Divided in a Florida Divorce?

Unless you’ve had the news shut off for several years, you’ve probably heard of Bitcoin, Ethereum, and the other “cryptocurrencies” which are taking the financial world by storm. Today, Bitcoin and the other cryptocurrencies have come a long way; no longer are these currencies simply regarded as chat skis or curiosities, which is largely how they were viewed when they first arrived on the scene. Now, these items are reshaping how we perceive money and finance, and many early investors have realized massive profits. The question becomes: how are cryptocurrency holdings divided in a Florida divorce? Let’s explore this question by first discussing a highly relevant publication, IRS Notice 2014-21.

First Principle: Cryptocurrency is Personal Property per IRS Notice 2014-21

In its seminal publication, IRS Notice 2014-21, the IRS officially provided a classification for “virtual currencies” (its term for cryptocurrencies): these currencies are intangible personal property, akin to stocks and bonds, and therefore recognized gains are taxable to the owner. In this publication, the IRS lays out general tax principles and states that these principles apply directly to cryptocurrencies since these currencies are no different from other types of intangible personal property held for investment.

For example, if someone purchases Bitcoin for $500, holds it, and then ultimately sells it for $1,000, capital gains taxation would apply to the $500 in profit recognized on the sale. Of course, things can become a bit tricky because, unlike other investment property, cryptocurrency can be actually used as a medium of exchange, and not always sold or cashed out. Plus, there is some additional level of anonymity to cryptocurrency, which makes imposing taxation more difficult. The bottom line, though, is that cashing out cryptocurrency is a taxable event to the extent that there is any gain.

Cryptocurrency is Divided Based on Equitable Distribution

Given its status as intangible personal property (which can be held for investment), we can deduce quite smoothly that cryptocurrency will be counted as marital property if it be acquired during the marriage. This is the case provided that the cryptocurrency weren’t acquired via inter vivos gift or inheritance. Then, if the crypto is marital property, it will be divided according to the principle of equitable distribution, the same principle which informs property division for all marital assets. This means that a judge will divide the marital assets based on fairness, and this requires a thorough analysis of all relevant factors involved.

Although the principles which apply to cryptocurrency can be understood rapidly, the mechanics of actually dividing up cryptocurrency marital property presents some challenges. For instance, when the cryptocurrency holder makes disclosures regarding his or her entire holdings, there is the risk of duplicity, because verifying this information can be difficult. Plus, there might also be issues associated with dividing cryptocurrency, as owners need special “digital wallets” to both hold cryptocurrency and make crypto-based transactions.

If you’re a cryptocurrency investor and you planned to safely ignore or overlook your holdings in a divorce, the above will come as an unpleasant realization. But, if you’re fully transparent with all your holdings, there is no reason why the property division process needs to be a hassle.

Contact The Family Matters Law Firm for More Information

The Family Matters Law Firm has over 25 years of experience serving families in Miami. We strive to assist our clients with all aspects of the divorce and separation processes, including conflict resolution, therapist referrals, and finance management referrals. We will help you divorce yourself from the fight and find peace of mind as you make a fresh start.

Call us today at The Family Matters Law Firm at (305) 701-2901 or contact us online to schedule a strategy session for legal advice with a legal separation attorney in Miami, FL.

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