Cryptocurrency Assets In A Community Property Divorce

Arizona is a community property state, so almost everything acquired by one or both spouses during marriage legally belongs to both spouses equally should they ever get divorced. A new type of asset that we see come up more frequently in property division discussions in divorce is cryptocurrency investments. Like other types of investments, cryptocurrency can be difficult to trace, especially if contributions were made to the account before or after marriage or if another friend or family member contributed to the account for investment purposes. It can also be one of the most highly contested assets that a couple fights over during property division. If you have cryptocurrency accounts and other investments that are a larger part of your financial plan, you will want to protect them if you get divorced. Whether you’ve been served with divorce papers or want to file them yourself, hiring skilled divorce representation can be crucial to your financial future and family life. Our Arizona family law team will fight to make sure you keep assets you’ve worked so hard your entire life to build. Learn more about our services and receive a quote for representation with your free consultation- call 480-680-9126 to get started. 

A lawyer discussing community property divorce with a couple at a table, with a gavel in the foreground

Community Property Division

Some states use equitable division to split up marital property, but Arizona uses a different method known as community property. Under this theory, all assets and debts acquired during a marriage become part of a community property estate. Property acquired before marriage is separate property, as is property acquired during marriage through inheritance, gift, or devise. Property that is acquired after either spouse files a petition for dissolution of marriage (divorce), legal separation, or annulment is also considered separate property. Separate property should not be included in assets that are split during property division. However, divorcing spouses can agree to any property configuration they so desire- community property is the theory that the judge will use if the matter proceeds to trial. Divorcing spouses can resolve the matter through a consent decree, but the key is that both spouses must agree to every issue in the document. 

At first glance, how cryptocurrency is treated in divorce may seem straightforward. If the cryptocurrency was acquired before the marriage, or the spouse acquired it through inheritance, gift, or devise, it is that spouse’s separate property. If the account was started after the marriage, it is community property that should be divided evenly between the spouses. But it can become more complicated when an account was started before the marriage, but contributions were made during the marriage with community property assets, which includes both spouses’ income while legally married. When this occurs, the crypto account will be considered to be commingled. Commingling, in a family law context, is the mixture of community and separate property assets. It could require assistance from a financial professional to correctly track down how much of the account is separate property and how much belongs to the community property estate. This increases the cost of a divorce as well as how long it will take to complete. 

Just because both spouses are entitled to a valuable cryptocurrency investment account doesn’t mean that the account must be cashed out to fund each spouse’s share. If one spouse has been more active in cryptocurrency investing than the other, it’s likely that they will want to retain that asset. If a good deal of the account belongs to the community property estate, that spouse may need to cede other assets to their spouse that are of a similar value. For example, if the spouses shared a third vehicle worth $25,000 and the cryptocurrency account is worth about the same, the spouse who has been involved in investing may let the other spouse have the vehicle in order to balance out the value of the cryptocurrency investment. 

Special Considerations For Cryptocurrency

As a cryptocurrency investment account could be a significant source of financial support for a married couple, it can become a highly debated issue in property division. There are also special issues surrounding taxation and hidden assets. Additionally, it can become a concern if a friend or relative of the spouse who was engaged in cryptocurrency investment gave them cash so they could invest the funds on their behalf. If you have complex investment and cryptocurrency issues in your Arizona divorce case, only the best legal representation will do. If you live in the greater Phoenix area and are seeking a family law attorney, look no further than our Arizona Family Lawyers. Call 480-680-9126 to get started with your free consultation today. 

Cryptocurrency can’t be withdrawn and placed in a safe physical location. It only exists behind computer screens, creating the risk that a spouse might use the account to hide funds they don’t want to split with their future ex in a divorce. Digital assets are also easier to hide in general- one spouse might not even be aware that their spouse has been investing in cryptocurrency throughout their marriage. They can be kept in secure folders on a phone or computer, or can even be transferred to a hard drive which can be hidden. If the records from a spouse’s cryptocurrency investments aren’t easily ascertainable, the other spouse may need to subpoena those records. Here, a forensic specialist can review the investor spouse’s computer to determine whether or not there is evidence of crypto investment. For more information about requesting evidence and documentation from your spouse during a divorce in Arizona, call 480-680-9126 to schedule your free consultation with our family law firm. 

Taxation & Cryptocurrency

How much taxes are due on cryptocurrency investments and who has to pay them can be a hot-button issue during a divorce in Arizona. When cryptocurrency is sold or transferred, the investor will experience a capital gain or a loss which must be reported to the IRS. It can be indicated on Schedule D or Form 1040, Capital Gains and Losses. It should also be reported on Form 8949, Sales and Other Dispositions of Capital Assets. Purchasing cryptocurrency but not selling or transferring any funds would not require a spouse to report the activity on their taxes. Struggling to work out tax liability, division of investments, and other financial issues in an Arizona divorce? Call 480-680-9126 to set up your free consultation with one of our experienced Arizona family law lawyers. 

Splitting Up Crypto In a Contested Divorce? Let Our Experienced Lawyers Help. 

Crypto is just one of an endless list of complex issues that can arise in a divorce in a community property state. Navigating all of them while in the midst of a divorce is overwhelming and stressful. A skilled family law attorney can streamline the process and help you achieve a favorable outcome given your personal circumstances. Az Family Law Lawyers know how to fight for our clients’ rights under Arizona law. If you’re seeking family law representation in Phoenix or Tucson, make our firm your first choice- we offer free consultations by phone and typically have same-day availability. To schedule your free consultation, call 480-680-9126 or contact us now!

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