Are you one of the more than 20 million individuals in the United States who own cryptocurrencies like Ethereum, Bitcoin or Dogecoin? If you are, and if you are also going through a divorce, prepare for it to become more complicated.
While some spouses may be unaware of the cryptocurrency purchases their wives or husbands make, that is an issue for another blog entirely. This entry will focus on the valuation difficulties of these incredibly volatile marital assets.
Why digital currency poses such problems
It is fairly simple to split more traditional investments like mutual funds, bonds and stocks. Even though their values do fluctuate and are influenced by economic and other factors, there is much greater volatility with cryptocurrencies.
So, how do you get a bead on the value of your crypto holdings during your divorce when a tweet by Elon Musk or a war declaration from Russia can send them soaring and plunging? One workaround is anticipating this by using a volatility formula to offset valuation changes in crypto holdings.
Industry experts suggest using stipulating something similar to making corresponding changes in the split of other assets when/if the cryptocurrency value changes by “X” percent.
What about the tax implications?
Older crypto purchases could have significantly increased, thus incurring hefty tax bills for long-term capital gains when sold. You also might have tax problems if you failed to list your crypto earnings before there were tax forms sent out for this purpose.
What is your crypto bottom line?
Both spouses should share the goal of staying out of trouble with the Internal Revenue Service (IRS). They should also work to achieve parity by seeking guidance both from those who know the legal system and those who are familiar with the ramifications of cryptocurrency volatility.