What You Need to Know About Dividing Crypto Assets in a Divorce

What happens when you have large cryptocurrency holdings and you get divorced? The answer is a bit tricky. While crypto assets will be divided between you and your spouse like any other asset, they cannot be divided as neatly as a car or a house. Because they are purely digital assets, dividing them presents its own special risks and challenges.

Valuation

First, there is valuation. The value of cryptocurrency fluctuates heavily. This means that the value established for the assets by a court may be very different from their value when they are actually divided. A 50-50 asset split could quickly turn into 70-30, or worse. In Alberta, the value of assets for property division purposes are set at the date of trial.

Tracing, hiding assets and dissipation

Before the assets can be evaluated, they must be located. Because cryptocurrency is purely digital and there exists no central authority to control it, it is easy to hide crypto assets in an offshore wallet or simply transfer them temporarily into a friend’s possession. Additionally, tracking the history of crypto transactions to determine when the assets were acquired and whether they are subject to division can be challenging. Without proper documentation, tracing the origin of crypto assets can be difficult, leading to disputes over ownership.

Privacy and cybersecurity

Another concern is cybersecurity. Transferring crypto assets securely requires a significant degree of technological expertise. If assets are not adequately protected while being evaluated and divided, there is a risk of hacking, theft, or loss, which could result in one or both parties losing access to their share of the assets. And if a hacker gained access to one of your crypto wallets, they may be able to access other accounts and identifying personal information as well.

Cryptocurrency transactions are generally pseudonymous, meaning they are not directly tied to real-world identities. This anonymity can raise concerns about the potential for hidden assets or undisclosed transactions, leading to distrust between spouses and complicating the division process.

Tax

Next, there are the tax implications. Transferring crypto assets between spouses as part of a divorce settlement may trigger tax liabilities, such as capital gains taxes. Understanding and addressing these tax implications is essential to avoid unexpected financial consequences for both parties.

Regulatory

The regulatory landscape surrounding cryptocurrencies is still evolving, which can complicate matters further. The lack of clear guidelines and regulations regarding the division of crypto assets in divorce cases can lead to uncertainty and disagreement between parties.

Dividing crypto assets during a divorce can introduce several risks and challenges, including:

1. Complexity of Ownership: Determining ownership of crypto assets can be complex, especially if they were acquired or traded during the marriage. Without clear documentation or records, establishing ownership rights can be difficult and may lead to disputes between spouses.
2. Regulatory Uncertainty: The regulatory environment surrounding cryptocurrencies is still evolving, and laws governing their treatment in divorce proceedings may vary by jurisdiction. This uncertainty can make it challenging to navigate the legal aspects of dividing crypto assets and may lead to delays or disputes in the divorce process.
3. Enforcement Challenges: Enforcing court orders related to the division of crypto assets can be difficult, particularly if one party refuses to comply. Unlike traditional financial assets held in centralized institutions, crypto assets may be more challenging to seize or transfer ownership of without cooperation from both parties.

Overall, dividing crypto assets during a divorce requires careful consideration of these risks and challenges, as well as proactive measures to mitigate them. Seeking guidance from legal, financial, and technical experts with experience in handling cryptocurrency-related matters can help navigate these complexities and ensure a fair and equitable division of assets.

https://www.crossroadslaw.ca/blog/how-the-rise-of-digital-currencies-is-complicating-family-law-cases/