In Texas, cryptocurrency and other digital assets acquired during the marriage are considered marital property, subject to the same community property laws as traditional assets.  The unique challenges with cryptocurrency in a divorce lawsuit relate to the tracing and valuation of the digital assets.

While disclosure requirements apply to cryptocurrency in the same way that they apply to other assets, the unregulated nature of cryptocurrency can make it easier to hide and trickier to trace.  In particularly complex cases, or cases in which hidden crypto assets are suspected, the use of forensic accountants is often the most effective method for identifying crypto assets.  Likewise, familiarizing yourself with the basics of storing and trading crypto can be helpful in identifying crypto holdings and transactions in bank statements and understanding the information to request from an opposing party.  Bank statements and other traditional financial records can reflect transactions with cryptocurrency exchanges evidencing the existence of the assets and providing clues of institutions from which to request records.

  • Cryptocurrency exchanges are trading platforms analogous to traditional stock exchanges, allowing users to buy and sell cryptocurrency and other digital assets such as NFTs (non-fungible tokens). Currently, the cryptocurrency exchanges with the largest market shares include Binance, Bybit, Coinbase Exchange, Crypto.com Exchange, and OKX.  Transactions with these exchanges can show up in traditional bank records and should provide clues as to the existence of crypto assets.
  • The cryptocurrency itself is stored in digital wallets on the blockchain with unique addresses that read as a chain of letters and numbers, similar to a bank account. Applications like MetaMask, Coinbase Wallet, and Phantom aggregate an individual’s wallets and reflect their holdings and transactions with cryptocurrency exchanges.

As with other hidden assets, any cryptocurrency found to have been undisclosed can result in serious penalties for the deceptive party including fines, attorney’s fees, and less than favorable division of assets.

The other challenge posed by cryptocurrency in divorce proceedings is valuation and equitable division as highly volatile assets.  Like traditional stocks, the value of cryptocurrency fluctuates, though often more quickly and dramatically as compared to other financial instruments.  Contrary to stocks, however, the value of the same cryptocurrency can also vary across exchanges. The uncertainty of value can cause difficulties when dividing cryptocurrency assets amongst the parties.  Valuation for the purpose liquidation or offset can be conducted based on historical averages, value at a specified date, or an average valuation across the various exchanges.  Valuation challenges can be avoided by dividing any cryptocurrency in kind with a direct transfer if both parties are interested in holding cryptocurrency.  Dividing parties can also stipulate to the designation and valuation procedures for cryptocurrency with a marital property agreement.

Finally, capital gains tax and other potential tax liabilities should be considered when making any allocation of cryptocurrency in a divorce.  A tax planner or other financial advisor with knowledge of digital assets should be consulted to minimize the tax implications.