Who Gets the Crypto in an Arizona Divorce?

by | May 1, 2022 | Divorce

Cryptocurrency trading and investing have exploded in popularity in recent years. According to the Pew Research Center, 16% of Americans now say they have traded or invested in cryptocurrency—including 31% of Americans between the ages of 18 and 29.

This means that cryptocurrency is also increasingly playing a role in the divorce process. So, who gets the crypto in an Arizona divorce?

Dividing Crypto in an Arizona Divorce: The Basic Rules Still Apply

Even though cryptocurrency is a unique asset, when it comes to dividing crypto in an Arizona divorce, the basic rules still apply. This means that divorcing spouses must divide their marital crypto-assets according to Arizona’s community property law.

Under Arizona’s community property law, most divorcing couples will need to split their property down the middle. However, there are some circumstances in which a 50/50 split won’t be warranted. As a result, when preparing to divide marital assets in a divorce, one of the first steps is to determine what percentage split is appropriate.

Another key early step is to determine what portion of your (or your spouse’s) cryptocurrency is subject to division in your divorce. As a general rule, assets owned prior to the marriage, assets acquired by inheritance, and assets received as a gift to one spouse qualify as “separate” property that is not subject to division in a divorce. But, there are exceptions, and commingling separate assets with community assets (i.e., using marital funds to purchase cryptocurrency in a pre-existing account) can put those separate assets on the table in subsequent divorce proceedings.

It is also important to keep in mind that dividing marital assets in a divorce doesn’t necessarily mean splitting each individual asset down the middle. In other words, getting divorced does not mean that your spouse will automatically get half of your cryptocurrency. If you choose, you can negotiate to keep all of your cryptocurrency holdings while giving up your interest in other marital property—as long as there is sufficient “other” property to satisfy the distribution requirements of Arizona’s community property law.

Valuing Cryptocurrency for Divorce Purposes

Given the volatile nature of Bitcoin and other cryptocurrencies, valuing cryptocurrency for divorce purposes can prove challenging. Bitcoin or Ethereum that is worth $100,000 today could easily be worth $50,000 or $150,000 when your divorce becomes final. So, how (and when) should you value your marital cryptocurrency for divorce purposes?

At this point, there are no specific requirements. Rather, divorcing spouses have the flexibility to agree on a valuation procedure that works for them. With this in mind, some of the most common options include:

  • Using the highest price on a specified date;
  • Agreeing to use the price on a specific date (and at a specific time) in the future; or,
  • Agreeing to a specific value, but also agreeing to adjust that value if the price increases or decreases by a certain percentage during the couple’s divorce proceedings.

Another option is to sell the couple’s marital cryptocurrency to convert it into cash. This eliminates any divorce-related concerns pertaining to an increase or decrease in value while the couple’s divorce is pending. Of course, this option may be undesirable for a spouse who wants to continue investing and generating returns. More-creative options are available as well, and the key is to find a solution that is agreeable for both spouses.

Disclosing (and Uncovering) Cryptocurrency During an Arizona Divorce

Under Arizona law, both spouses are required to disclose their assets at the outset of the divorce process. This requirement exists to ensure that both spouses have a clear understanding of the assets that are on the table and that no assets go overlooked during the divorce process.

Withholding information about assets—including cryptocurrency holdings—is against the rules. If a spouse withholds information about his or her assets during a divorce, this can potentially have both civil and criminal implications. As a result, both spouses should make good-faith efforts to disclose their assets in full, and dealing with hidden assets shouldn’t be an issue in most cases.

Of course, not all spouses follow the rules. Some spouses attempt to hide assets during their divorces. Due to cryptocurrency’s relatively anonymous nature, it is a prime candidate for hiding.

If you believe that your spouse may be hiding cryptocurrency, there are various ways a divorce lawyer can help you uncover these assets. Forensic accounting methods and digital forensics allow investigators and divorce lawyers to trace even well-hidden transactions. Once your spouse understands the risks associated with attempting to hide assets during your divorce, this could lead to “voluntary” disclosure as well.

Dividing Other Digital Assets in an Arizona Divorce

In many cases, cryptocurrency will be just one of several digital assets that are on the table in a couple’s divorce. In fact, many other types of digital assets are far more common. In a typical scenario, divorcing spouses will need to deal with some (or all) of the following during their divorce:

  • Domain names and websites
  • E-book, game, movie, and music libraries
  • Online savings and investment accounts
  • Online businesses
  • Photo and video libraries
  • Social media profiles

Each type of digital asset requires its own unique approach. For example, while divorcing spouses may need to obtain valuations for domain names and then determine which spouse will keep each domain (or decide if the domains should be sold), each spouse can typically keep a copy of their family photos and videos. In the end, divorcing spouses must work to reach an agreement (using mediation or collaborative law if necessary), or else they will need to ask a judge to divide their digital assets for them.

Schedule a Free Consultation with a Phoenix Divorce Lawyer

If you need to know more about how to deal with cryptocurrency or other digital assets during the divorce process in Arizona, we encourage you to contact us for a free consultation. To speak with an experienced Phoenix divorce lawyer in confidence, please call 480-542-0099 or contact us confidentially online today.

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