Dividing Cryptocurrency Holdings in a Maryland Divorce

Published on
October 12, 2022
Written by
Angel Murphy
Category
Divorce

Dividing Cryptocurrency Holdings in a Maryland Divorce

Cryptocurrencies – Bitcoin, Ethereum, and others – continue to impact and reshape the financial world. More and more, people realize the significance of cryptocurrencies. Not just in terms of their growing purchasing power but also in what they represent for finance in general. In many ways, these currencies affect our basic conception of money. People have believed that the dollar has intrinsic value for so long, but cryptocurrencies have thrown this situation off-kilter. The future is very uncertain for cryptocurrency. We can say without reservation that these things have made a lasting imprint on the world around us.For a long time, the financial community was unsure how to classify cryptocurrency. There was uncertainty about whether cryptocurrency was genuine property or a kind of financial fiction. Fortunately, the IRS has clarified some of this uncertainty. So now, Maryland courts know how to divide cryptocurrency holdings in a divorce.

Basic Principle: Cryptocurrency is (Intangible) Personal Property

In its seminal publication, IRS Notice 2014-21, the IRS stated that “virtual currency” will be treated just like any other type of intangible personal property, such as stocks and bonds. It is true that cryptocurrency not only has no physical existence but has a level of anonymity that isn’t characteristic of stock ownership, bond ownership, or other pieces of intangible property. Moreover, the IRS also stated that consistent with this classification; they will tax gains derived from cryptocurrencies according to the character of the gains. We would expect this from a straightforward application of general tax principles. Hence, if someone purchases $10,000 of Bitcoin and then cashes out when it appreciates to $20,000, the $10,000 gain will be taxed at the applicable (capital gains) tax rate.

Cryptocurrency is Subject to Division as Marital Property

Given cryptocurrency’s classification as intangible personal property, we can see how cryptocurrency would be subject to division to the extent that it is marital property. If one spouse acquires cryptocurrency holdings during the marriage, those holdings will be divided in the event of divorce according to Maryland’s equitable distribution principle. Thus, from a theoretical standpoint, there is no difference between cryptocurrency holdings and holdings of any other sort in the context of property division. Of course, crypto holdings present numerous challenges from a pragmatic point of view. For instance, cryptocurrency holdings are kept in “digital wallets,” so dividing holdings can be practically difficult. Furthermore, cryptocurrency owners may have more opportunities to be less than transparent when making customary financial disclosures during a divorce. Although the public knows more about cryptocurrency as time proceeds, a person with specialized knowledge of it will still be able to conceal holdings in many cases.

In some instances, verifying holdings may be difficult, if not nearly impossible, but this can present challenges in a divorce. It may improve some of these challenges as time progresses, but assets may be a bit tricky in the short term in a divorce.

Contact the Murphy Law Firm for More Information

If you’d like to learn more, reach out to The Murphy Law Firm today by calling 240-493-9116.

Angel Murphy

Personable. Passionate. Persistent.

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