Cryptocurrency in a Nuptial Agreement or Divorce Case

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Like most states, Florida is an equitable distribution regime. This means that, in the event of divorce without a nuptial agreement, marital property will be distributed between spouses with a premise that such assets and liabilities will be divided equally. Nonmarital property is set aside to the spouse who owns such property.

What makes property marital as opposed to nonmarital?

Nonmarital property falls into three broad categories: (1) property acquired prior to the marriage; (2) property acquired during the marriage by non-interspousal gift or inheritance; and (3) property excluded by agreement (i.e., prenuptial or postnuptial agreement). The proceeds from the sale or transfer of a nonmarital asset, as well as income derived from that asset and passive appreciation thereon, will retain its nonmarital character. These general principles, however, are subject to a caveat: nonmarital assets may lose their nonmarital character if commingled with marital property. This is because money is fungible — once nonmarital funds are commingled with marital funds and it is no longer possible to determine which funds are which, Florida law deems all of such funds marital.

Marital property includes commingled funds as above and, essentially, everything else: property acquired during the marriage, individually by either spouse or jointly by them; income attributable to the labor and efforts of either spouse (i.e., paychecks); the enhancement in value and appreciation of nonmarital assets resulting from the efforts of either party during the marriage or from the contribution to or expenditure thereon of marital funds; and interspousal gifts during the marriage.

Why does this matter for your crypto?

In Florida, a party entering into a prenuptial or postnuptial agreement is required to provide full and accurate financial disclosure to the other party. Parties to a divorce proceeding are similarly required to exchange certain financial documents within 45 days of inception of the divorce case pursuant to a process called Mandatory Disclosure. Such documents include federal and state income tax returns and bank statements for various accounts. Your crypto holdings will almost certainly be part of that disclosure.

In fact, effective January 1, 2021, as crypto started to become mainstream, Mandatory Disclosure was amended to explicitly require the disclosure of (1) the most recent statement and statements for the prior 12 months for any virtual currency transaction in which either party participated; and (2) a listing of all holdings of virtual currency. This means that a crypto holder is required to disclose to his or her spouse a listing of all of his or her crypto assets, even if that spouse is unaware of the scope, or even existence, of those assets. In a divorce, a party’s crypto holdings may be marital and thus subject to equitable distribution; nonmarital and thus insulated from equitable distribution; or some blend of the two. A person in a marriage should tread carefully before hitting the buy button on an exchange — he or she may unintentionally commingle funds or otherwise create a marital asset when there was no intent to do so. A carefully crafted prenuptial or postnuptial agreement can provide the protection intended to keep one’s crypto insulated in the event of divorce (and death), even if the crypto was purchased during the marriage.

There are two other notable legal issues that should be considered in a divorce involving cryptocurrency. First is the demarcation line for when a crypto asset is determined to be marital versus nonmarital. Second is the valuation date for that crypto.

Under Florida law, the cut-off date for determining whether an asset is marital or nonmarital is the filing date of a petition for dissolution of marriage. If one were to purchase cryptocurrency during the marriage using marital funds, before either party filed for divorce, that crypto would be marital property. Conversely, if one were to purchase cryptocurrency using post-filing income after a party filed for divorce, that crypto (provided that it was not subsequently commingled) would be nonmarital.

The cut-off date for the determination as to whether an asset is marital or nonmarital is the date of filing as above; however, the date for valuation of such asset is whatever date is just and equitable under the circumstances. The Court may value different assets as of different dates, as the circumstances so require. For an asset as potentially volatile as cryptocurrency, the valuation date can have a huge impact on the values of each party’s respective financial entitlements in the event of divorce. It is critical to have counsel who knows how to advocate properly for a crypto valuation date that is most favorable to your interests. And, in the event that you are entering into a nuptial agreement, counsel must understand how to properly disclose your crypto holdings.

Crypto assets will be part of many nuptial agreements and divorce proceedings in the years to come. You should make informed and deliberate decisions as to when and how to accumulate your crypto, whether you are entering into a marriage or getting out of one.

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