Cryptocurrencies and NFTs (non-fungible tokens) have become popular means for investing your money and building alternative portfolios. With their increased popularity, they have been brought up more and more in divorce hearings, since divorces, even easy uncontested divorces, involve the division of digital assets. If you or your spouse have invested in cryptocurrency or NFTs, either before or during the marriage, it will have to be addressed during your divorce proceedings. As a marital asset that needs to be valued and divided, there are a number of factors and strategies that you will need to consider.
Tax Considerations
If you or your spouse have purchased cryptocurrency in recent years you may have noticed a significant increase in your investment. This will have implications, including long-term capital gains taxes, upon the sale of your cryptocurrency if you are divesting your investments for the purpose of your divorce. If this is the case, a post-divorce tax bill will be one of the factors in your divorce negotiations. Additionally, if one spouse failed to report their crypto investments to the IRS, they will need to remedy this. This will be impactful if spouses have been filing their taxes jointly, with the Treasury Department recently imposing crackdowns on individuals who fail to report on their crypto investments.
Transferring Assets
While there is well established precedent for dividing traditional investments during a divorce in Alabama, some cryptocurrency exchanges might not have the experience with transferring crypto investments from one spouse to another. For individuals who are not as familiar with cryptocurrency, this process can be a little confusing, especially when it comes to accessing this digital portfolio. One of the things they potentially have to worry about is potential tax liabilities when the funds are transferred. There are frequent market fluctuations that would influence this, so it is important to be mindful of these fluctuations.
With NFTs, which are unique and irreplaceable digital assets, similar in some ways to collectable artwork, you would not necessarily be able to transfer a portion of the asset. Here you would likely have to consult an expert divorce attorney in how to establish the worth of the NFT in order to divide the value you derive from the asset
The Discovery Process and Finding Evidence of Cryptocurrency and NFTs
Discovery is a preliminary process in divorces where depositions and subpoenas are filed to gain the full picture of an individual’s assets. The thing about cryptocurrency is that it is a secure asset, protected by a digital wallet, either online or on a physical device. And NFTs are cryptographic assets that exist on a blockchain, as though you were storing a unique piece of artwork at a separate location from your primary domicile.
The first thing you will have to do is determine if your spouse has a digital wallet, and whether it exists online or a separate device. Either way, the wallet will have access information like passwords wherein you can get a transaction history. It will look somewhat similar to a bank statement. You will be able to find out the conversion rates, dollar amounts, dates of transfers, and purchase history. If your spouse was using crypto to buy other items then this could lead to the discovery of other assets.
Providing Proof of Crypto Assets
As previously mentioned, digital wallets contain plenty of relevant information that will establish what crypto assets are owned and how they have been invested. One crucial thing that you should not do is delete this trail of evidence. If you attempt to conceal your assets there are a number of possible consequences, including a court enforced closing of your accounts. Think about crypto like any other asset — it is unwise to conceal them during divorce proceedings.
If you or your spouse have invested in digital assets, each of you should consult with your attorneys to untangle yourselves from the complications of this contemporary form of investment. Many attorneys, and states, are catching up to the way that this wealth stream can be divided in an uncontested divorce in Calhoun County or anywhere else in the State of Alabama.
