Cryptocurrency volatility may affect divorce settlements

On Behalf of | Aug 16, 2021 | High-Asset Divorce |

As a growing number of people in Illinois invest in cryptocurrency, disputes over these assets have also become an issue for divorcing couples going through settlement negotiations or litigation. Asset division is often a contentious issue during a divorce, especially for people with significant wealth and other assets. While some assets may have a straightforward valuation, like a retirement account, a marital home or cash accounts, others may also face competing and changing valuations throughout the process, including businesses and cryptocurrency.

Cryptocurrency is known for fluctuating values

Many cryptocurrencies have become known for frequent fluctuations in value. Even well-established cryptos like bitcoin or ethereum may fluctuate dramatically in value, with significant effects on people with high levels of crypto holdings. There are over 20 million people with crypto holdings nationwide, with an overall market value of over $2 trillion. Given that property division involves establishing a clear value for each marital asset held by the divorcing couple, cryptocurrency value fluctuations can lead to a lack of clarity on the overall size of the marital estate. This is especially true for people in a high-net-worth divorce, where substantial cryptocurrency holdings or even businesses based on the crypto industry may be at stake.

Dealing with cryptocurrency value shifts

In order to reach a property division settlement, couples must agree on a valuation of the crypto assets. However, they may also include a formula in their agreement related to the volatility of cryptocurrency or reopen the agreement to divide assets. For example, a change in crypto value by a certain percentage may cause a corresponding change in the distribution of a different marital asset.

There are other complications involving cryptocurrency during a divorce, including ensuring that any tax consequences are equitably distributed between the spouses. Others may be concerned that one partner is hiding some crypto assets from the court. As crypto-assets become increasingly in-demand investments, dealing with cryptocurrency division during divorce will also become more common.