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Davidson Law Firm

Cryptocurrency – Is It an Asset to be Considered in Arkansas Divorces?

Let's discuss cryptocurrency. Cryptocurrency is a new kind of digital money secured by fancy math that doesn't depend on big money. It can be used differently, such as investing and buying stuff online without hassle. So, you may ask, how does cryptocurrency work in an Arkansas divorce?


As previously discussed in our other blogs, Arkansas follows the principle of equitable distribution. Equitable distribution means marital assets and liabilities are divided equally between the parties unless legitimate reasons exist for an unequal division.

In Arkansas, cryptocurrency would be considered a marital asset if acquired during the marriage. This means cryptocurrency is subject to equitable distribution in the event of a divorce. Although cryptocurrency is a relatively new form of asset, it is treated similarly to other types of property or financial assets.


Cryptocurrency holdings are treated in the Arkansas property division process like other assets like stocks or bonds. They will be divided by an Arkansas court if they are considered marital property, and like other assets in Arkansas, the "inception of title" principle is applied to cryptocurrency holdings. This means that assets acquired before marriage are presumed to be separate property, while assets acquired during marriage are presumed to be marital property, and the exceptions of gifts and inheritances could apply. However, even if the cryptocurrency could be considered non-marital, the increased value it obtained during marriage may be regarded as marital property.


How is Cryptocurrency Valued


Valuing cryptocurrency in a divorce can pose challenges because of its distinctive and fluctuating nature. However, there are several methods to ascertain its value:


- Determining the fair market value at a specific date

- Utilizing price indexes

- Employing historical accounting

- Engaging in forensic accounting


Given cryptocurrency's volatility, the court may address any substantial changes in its value between the valuation date and the division date by adjusting other asset allocations to accommodate these fluctuations. Generally, in Arkansas, cryptocurrency is evaluated based on its market price at a specified date. Despite the complexities involved, it's essential to approach the valuation with optimism and thorough consideration for a fair and equitable resolution.


Potential Challenges in Discovering Cryptocurrency


Like other assets, cryptocurrency can sometimes be challenging to uncover if not fully disclosed. While most couples are transparent about their accumulated assets and liabilities, there are instances where one party may acquire cryptocurrency without the other's knowledge and attempt to keep it hidden during the divorce process. It's essential to work with a knowledgeable attorney who can help ensure that all assets, including cryptocurrency, are accounted for and distributed.


Discovering cryptocurrency during a divorce may present some challenges, but rest assured, it's entirely achievable, especially with the appropriate legal and forensic resources. Throughout the divorce process, both parties are expected to offer comprehensive financial disclosures encompassing all assets, including cryptocurrency. Failing to disclose assets may result in legal consequences, contempt of court, or potential adjustments in asset division. Deliberate concealment of assets by a spouse could significantly impact the court's decisions regarding the division of marital property. However, with the right approach and transparency, navigating through the process can lead to a fair and just outcome.


If you suspect your spouse may be hiding cryptocurrency, hiring a forensic accountant can be a significant step in uncovering any hidden assets. Cryptocurrency transactions may seem anonymous initially, but the blockchain, the public ledger for all cryptocurrency transactions, leaves a trace. With the help of a skilled professional, it's possible to follow the digital footprint and trace the movement of funds back to the person who owns the wallet or account, bringing some clarity and resolution to the situation.


Cryptocurrency and IRS



If you own any cryptocurrency, you must report it to the IRS, and the IRS could impose tax implications if it is not reported. It's considered a taxable event when you sell cryptocurrency for a profit, trade it for another, use it to buy goods or services, or receive it as payment. Even if you try to keep it hidden, the IRS requires disclosure of cryptocurrency on your tax return. It's essential to stay informed and ensure you're fulfilling your tax obligations while enjoying the exciting world of cryptocurrencies!


To explore how cryptocurrency factors into divorce proceedings or gain insights into Arkansas's property division, contact one of our family law team members at Davidson Law Firm at 501-374-9977.

 

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