Introduction: Basic Facts on Cryptocurrency
Cryptocurrency – also commonly referred to as “virtual currency,” especially in IRS documents – has taken off in the U.S., and around the world, and continues to fascinate people all over Texas. Part of the fascination can be attributed to cryptocurrency’s meteoric rise in recent years. In the not too distant past, cryptocurrency was a mere curiosity, something which only a few computer scientists and hobbyists knew about. Now, Bitcoin and other cryptocurrencies have skyrocketed in both popularity and monetary value. The market for cryptocurrencies remains quite unstable, however, particularly when compared with other asset classes, and so investment in cryptocurrencies is still something of an uncertain proposition. Many people consider Bitcoin, Ethereum, and other cryptocurrencies to be like “virtual gold,” but there is enough skepticism to cause frequent and substantial fluctuations in the crypto market.
For those Texans going through a divorce, the question arises: what happens to cryptocurrency in the property division process in Texas? It is clear that cryptocurrencies, particularly Bitcoin, have at least some value, and so how do Texas courts go about dividing up these currencies?
In this post, we will discuss the basics regarding the handling of cryptocurrencies in the Texas property division process.
Key Point: Cryptocurrency is Classified as “Intangible Personal Property”
One of the key points to make is that cryptocurrency is officially classified as “intangible personal property.” This is the classification which has been assigned by the IRS. This means that, despite its cryptic nature, cryptocurrencies are essentially the same as stocks or bonds, at least from a tax-legal perspective. The IRS actually gave this classification to cryptocurrencies (or “virtual currencies,” in the language of the IRS) a few years ago, back when Bitcoin and other currencies were beginning their ascent. This quieted the uncertainty which was surrounding the tax implications of cryptocurrencies.
Texas Divides Cryptocurrency Consistent with Its Classification
Given that cryptocurrencies are treated as stocks or bonds by the IRS, readers should not be surprised that Texas divides these assets in a manner consistent with this classification. As with stocks or bonds, Texas will take account of the cryptocurrency holdings by identifying the cost basis and making a determination as to market value. Like other property, the provenance of the holdings will be examined to determine whether the cryptocurrency is separate property or marital property; cryptocurrency is not “special” in this way either, and so all cryptocurrency holdings acquired prior to marriage, or via gift or inheritance, are considered separate property. If a Texas court determines that there is approximately $50,000 in cryptocurrency at the time of divorce, and that this currency is all marital property, then the most likely outcome is that each spouse will receive $25,000 following property division.
Additional Point: Cryptocurrency Holdings May Be Hard to Identify
Even though cryptocurrency follows the normal rules when it comes to Texas property division, things can get more complicated when it comes to implementing these rules. Obviously, by its nature, cryptocurrency is not always easy to identify, as the digital wallets used to hold cryptocurrencies often are anonymous and hard to track. Thus, in many cases, there may be cryptocurrency holdings determined to be marital assets, but these assets might be almost impossible to track down. We can see how these assets may be easily “hidden” and how spouses may be able to “cheat” the property division process with cryptocurrencies. An expert may be needed to attempt to identify cryptocurrency holdings, depending on the circumstances.
Contact Goldsberry Portz Divorce & Family Lawyers, PLLC, for More Information
If you would like more information about cryptocurrency in the division of marital assets, or another property division topic in Texas law, contact one of the top family law attorneys at Goldsberry Portz Divorce & Family Lawyers, PLLC, today by calling 281-485-3500.