How is Cryptocurrency Handled in a Colorado Divorce?
Cryptocurrency is Not a “Special” Asset
How is Cryptocurrency Handled in a Colorado Divorce? Cryptocurrencies – i.e. Bitcoin, Ethereum, etc. – continue to fascinate the public. Most adult Coloradoans know about cryptocurrency, although relatively few know the finer details on how these currencies operate. Cryptocurrency has long been shrouded in mystery; for years, its origins remained murky, and only a few computer specialists understood the technical details of how these currencies functioned. Now, cryptocurrencies are relatively well-known, and so quite a few Coloradoans own cryptocurrency as part of their overall portfolio.
Because of the newness of cryptocurrencies, and their general cryptic nature, many might assume that cryptocurrency holdings are a “special” asset class, but this is actually not true. In this post, we will go over the basics of how these assets are handled in a Colorado divorce.
The IRS Classifies Virtual Currency as Personal Property
The first thing to point out is that cryptocurrency (or “virtual currency”) has been classified as a taxable asset by the IRS. In one of its official publications, the IRS stated that it regards Bitcoin and other virtual currencies as a type of intangible personal property. In this way, cryptocurrency is essentially the same, from a tax or legal standpoint, as stocks, bonds, and other specific forms of intangible personal property.
Hence, even though cryptocurrencies are unique in some ways, they are not special from a tax perspective.
Cryptocurrency May Be Harder to Detect / Easier to Hide
Another thing to note about cryptocurrencies is that these assets may be easier to hide, and so spouses may need to be more “on alert” just before and during the divorce process. Given the nature of these assets, they are more difficult to detect, as there is relative anonymity. The “digital wallets” which hold the cryptocurrencies may be almost impossible to tie to a specific person. Given these realities, spouses may attempt to hide or dissipate crypto assets when divorce is imminent. Spouses need to be aware of these facts and take the necessary steps to ensure maximal transparency during the divorce process.
Marital Cryptocurrency Holdings are Treated Like Other Marital Assets
To the extent that cryptocurrency holdings can be documented and traced to an identified owner, and to the extent that they are marital property, these assets are treated like other marital assets in the Colorado property division process. This means that, if these assets are classified as marital property, they will be divided in accordance with Colorado’s established legal principles in this area. If there are no compelling reasons to divide unevenly, the presumption is that marital assets will be split evenly, and this applies to cryptocurrency holdings just as with other assets. Cryptocurrency holdings may be categorized as separate property, and remain with the original owner, just like other assets. The same principles regarding separate property apply, and so cryptocurrency holdings obtained before the marriage are categorized as separate property, as are holdings obtained via inter vivos gift or inheritance (either before or during the marriage).
Given the volatile nature of the cryptocurrency markets, hiring an outside consultant may be necessary to develop a workable valuation of cryptocurrency assets. You may also need to hire an outside professional to track down cryptocurrency assets and ensure that everything is properly documented.
Contact the Drake Law Firm for More Information
If readers want to learn more about how cryptocurrency is handled in the Colorado property division process, or about any other family law matter, reach out to the Drake Law Firm today by calling 720-679-8813.