Overview of Crypto Assets in Divorce: What Spouses Need to Know About Digital Currency and Marital Property

A primary component of a New Jersey divorce is the division of assets. In very recent times, the rise of cryptocurrency has introduced a new layer of complexity into the process of dividing asserts in a New Jersey marriage dissolution proceeding. Bitcoin, Ethereum, and other digital assets are increasingly appearing in divorce proceedings across the United States, including in the Garden State. For spouses and their attorneys, understanding how these assets are identified, valued, and divided is essential. We present for your consideration an overview of crypto assets in divorce.

What Are Crypto Assets?

Crypto assets most commonly are referred to or known as cryptocurrencies. In their essential terms, crypto assets are digital currencies secured through cryptography and recorded on what is known as blockchain technology. The most widely known example is Bitcoin. However, there are thousands of other cryptocurrencies.

Cryptocurrency is not just another investment account. Its decentralized structure, pseudonymous ownership, and extreme volatility make it unlike traditional financial assets. As a result, courts and divorce practitioners must approach crypto holdings with particular care.

Unlike traditional currency held in banks, cryptocurrency is typically stored in digital wallets that can be accessed through private keys or password-protected platforms. These assets may be held in online exchanges such as Coinbase or Kraken, in private digital wallets, or even on hardware devices known as “cold wallets.”

When it comes to the matter of crypto assets in divorce, cryptocurrency operates outside traditional banking systems. Significantly, its ownership and transfer can be difficult to track without proper disclosure during the course of New Jersey divorce proceedings.

Is Cryptocurrency Marital Property?

In New Jersey, cryptocurrency is treated the same as any other financial asset during the course of marriage dissolution proceedings. In simple terms, if a crypto asset or cryptocurrency was acquired during the term of the marriage, it is likely to be considered marital property subject to division in divorce court.

What this specifically means is:

• Cryptocurrency purchased with marital funds during the marriage is typically divisible.
• Crypto acquired before marriage may be separate property, unless it became commingled with marital assets.
• Gains in value during the marriage may also be considered marital property in some circumstances.

Courts do not treat cryptocurrency differently simply because it is digital. Instead, it is usually categorized similarly to stocks, investment accounts, or other financial holdings. However, determining the precise value and ownership of these assets can be much more complicated, a fact which we discuss in a moment.

Challenge of Identifying Crypto Holdings

One of the most significant issues in divorce cases involving cryptocurrency is identifying whether the assets exist at all. As alluded to a moment ago, unlike traditional bank accounts, cryptocurrency accounts do not necessarily appear on routine financial records. A spouse may hold digital assets in an exchange account, a private wallet, or even on a hardware device stored at home.

The stark reality is that in some cases, individuals attempt to conceal cryptocurrency during divorce proceedings because the assets can be transferred quickly and discreetly. Warning signs that crypto assets may exist and may be hidden include:

• Transfers from bank accounts to cryptocurrency exchanges
• References to crypto trading platforms in financial records
• Unexplained withdrawals or missing funds
• Emails or app activity related to digital asset platforms

When cryptocurrency is suspected, forensic accountants or digital asset investigators may be necessary to trace transactions on the blockchain in order to assured that crypto assets in divorce are fully accounted.

Valuing Cryptocurrency in Divorce

Finally, when it comes to crypto assets in divorce, another challenge is determining the value of cryptocurrency for purposes of equitable distribution. Unlike traditional investments, cryptocurrency values can fluctuate dramatically within short periods of time. A digital asset worth $50,000 today might be worth $35,000 or $70,000 weeks later.

• Courts typically address this issue in one of several ways:
• Date of filing valuation: The asset is valued on the date the divorce case was filed
• Date of distribution valuation: The value is determined at the time the asset is divided
• Agreed valuation date: The parties agree to use a specific date

If you have any questions or are in need of legal assistance, you can schedule a no cost, no obligation initial consultation by calling the Law Offices of Peter Van Aulen at 201-845-7400.