Cryptocurrency and Your California Divorce: What You Need to Know First
I’m Charles M. Green, a Certified California Family Law Specialist and licensed CPA with over 27 years of experience handling complex divorces in Los Angeles County courts. This article explains how Bitcoin, Ethereum, NFTs, and other digital assets are treated when you’re going through a California divorce.
California is a community property state. Under the California Family Code, most cryptocurrency acquired during your marriage is considered community property and will be divided 50/50 between you and your spouse. This equal division rule applies to digital currency the same way it applies to your home, retirement accounts, or bank account balances.
Cryptocurrency in divorce creates unique challenges that don’t exist with traditional financial assets. Your spouse might hide Bitcoin in an anonymous hardware wallet. Ethereum purchased last month could be worth half as much—or twice as much—by the time your case reaches trial. When you sell crypto to divide it, you could face significant capital gains tax. Incorrectly transferring private keys can result in losing access to hundreds of thousands of dollars within seconds.
My dual background as a family law attorney and licensed CPA allows me to help clients navigate these financial complexities. I regularly work with forensic accountants to trace blockchain transactions, value speculative tokens, and structure settlements that minimize long-term tax exposure. This combination of legal and financial expertise matters when your marital estate includes volatile, technically complex assets.
Divorce cases in LA-area courts—including Downtown LA’s Stanley Mosk Courthouse, Van Nuys, Pasadena, and Long Beach—increasingly involve significant cryptocurrency holdings. I’ve seen cryptocurrency portfolios worth seven figures or more become central disputes in divorce proceedings. Whether your spouse owns cryptocurrency openly or you suspect hidden assets, understanding how California law applies to these digital assets is essential to protecting your financial future.
How California Classifies Cryptocurrency in Divorce
Cryptocurrency includes Bitcoin, Ethereum, stablecoins like USDC, NFTs (unique digital collectibles), and tokens from decentralized finance (DeFi) platforms. California treats all of these as “property” rather than “money” for divorce purposes. This classification matters because it determines how courts handle asset division and what disclosure requirements apply.
The distinction between community property and separate property determines who gets what in your divorce. Under California Family Code §760, any property acquired by either spouse during the marriage using marital funds is presumptively community property. Bitcoin purchased in 2017 during your marriage, using earnings from either spouse’s job, is community property—even if only one spouse made the purchase and controlled the wallet.
Separate property includes assets you owned before the marriage or received as a gift or inheritance during the marriage. If you bought Ethereum in 2015 and got married in 2018, that Ethereum is typically considered separate property. Similarly, if your parents gave you NFTs as a gift in 2020, those assets held in your own wallet remain separate property—as long as you didn’t commingle them with community funds.
Here’s how classification works in practice with cryptocurrency assets:
- Pre-marriage crypto kept separate: You purchased 5 Bitcoin in 2016 for $3,000. You got married in 2019 and kept that Bitcoin in the same wallet without adding to it. Those coins are your separate property, though their appreciated value may still be subject to division depending on how gains were managed.
- Gifts and inheritances: Your mother transferred $25,000 in Ethereum to your wallet in 2021 as a birthday gift. This is separate property if you kept it in a separate account and didn’t mix it with coins purchased using joint income.
- NFTs purchased with joint funds: In 2022, you used money from your joint checking account to buy NFTs on OpenSea. These are community property regardless of whose name appears on the exchange account.
Commingling creates significant problems. Imagine you brought 2 Bitcoin into the marriage as separate property, then purchased an additional 3 Bitcoin during the marriage using your salary. If all 5 Bitcoin sit in the same wallet, tracing becomes necessary to identify which portion is separate and which is community. Without clear transaction histories, California courts may presume the entire wallet is community property—and the spouse claiming otherwise bears the burden of proving separation.
Digital assets beyond traditional crypto can also be part of the marital estate. Revenue-generating websites, app-based tokens, YouTube channels with ad income, and even valuable in-game items may qualify as other property subject to division. If your spouse built a profitable crypto-related platform during the marriage, its value—and any tokens associated with it—could be community assets.
Disclosing and Detecting Cryptocurrency in a California Divorce
California law requires full financial disclosure in every divorce. Under California Family Code §§2100–2106, both spouses must complete an Income and Expense Declaration, a Schedule of Assets and Debts, and preliminary and final disclosure documents. These filings must include all cryptocurrency holdings—every wallet, every exchange account, every token.
The disclosure requirement applies to digital assets just as it applies to bank accounts, brokerage statements, and real estate. You cannot legally omit your Coinbase account because “it’s just crypto” or claim you forgot about the hardware wallet in your desk drawer. Complete disclosure is mandatory, and the consequences of hiding assets can be severe.
Spouses attempt to hide crypto in several common ways:
- Using offshore exchanges that don’t report to U.S. authorities
- Storing coins in hardware wallets (physical devices) kept at home or in safe deposit boxes
- Converting holdings to privacy coins like Monero that are harder to trace
- Moving funds through multiple cryptocurrency exchanges—Coinbase to Binance to Kraken to Gemini—to obscure the trail
- Transferring crypto to friends or family members with agreements to return it after the divorce
Discovery tools exist to uncover hidden assets. Your attorney can subpoena U.S.-based exchanges like Coinbase, Kraken, and Gemini, which are required to comply with legal process. Interrogatories can demand detailed responses about all exchange accounts, wallet addresses, and transaction histories. Requests for production can require your spouse to provide screenshots of wallet balances and export complete trading records.
Traditional financial records often reveal digital assets even when a spouse tries to hide them. Bank statements showing transfers to Coinbase in 2021 suggest crypto holdings that should be disclosed. PayPal and Cash App records may show cryptocurrency purchases. IRS Form 1040 now includes a question on Schedule 1 asking whether the taxpayer received, sold, or exchanged digital assets—a “yes” answer on a joint return means both spouses knew crypto was involved. Forms 1099-B or 1099-MISC from exchanges provide direct evidence of trading activity.
When exchange records and bank statements aren’t enough, forensic accountants and crypto-tracing experts become essential. These financial experts analyze on-chain activity to follow blockchain transactions from wallet to wallet. They use wallet clustering techniques to link pseudonymous addresses to known identities. They can reconstruct trading histories across multiple platforms and identify attempts to move or hide assets.
In LA County courts, I frequently request early temporary restraining orders to prevent a spouse from transferring, selling, or “losing” crypto during the divorce process. These automatic temporary restraining orders (ATROs) prohibit both parties from hiding, disposing of, or encumbering assets once the divorce is filed. Violating these orders carries serious legal consequences.
Consequences of Hiding Crypto: Real California Outcomes
California courts take a dim view of spouses who hide cryptocurrency. In a well-known case pattern similar to the 2021 Oklahoma Roberts matter, a spouse listed NFTs (CryptoPunks) on the marital balance sheet at $207,000—while evidence later revealed the true value approached millions of dollars at peak NFT prices. Post-separation deposits nearly tripled the disclosed estate. The court vacated the original judgment based on fraud.
California law imposes fiduciary duties between spouses under Family Code §§721 and 1100. These duties require the highest good faith and fair dealing in managing community property. You cannot hide your cryptocurrency holdings from your spouse any more than you can hide a bank account or investment portfolio. The duty to disclose applies to every exchange account, every wallet address, and every token you control.
When hidden assets are discovered, courts have powerful remedies. Sanctions can include monetary penalties. Judgments can be reopened years after the divorce is final if fraud is proven. Courts may award 100% of the hidden asset—not just half—to the innocent spouse. Attorney’s fees incurred to uncover the fraud are typically shifted to the hiding spouse.
Judges in LA County—whether at Stanley Mosk Courthouse, Pasadena, or Pomona—are increasingly sophisticated about cryptocurrency. The excuse “I didn’t think I had to disclose it” no longer works. Courts expect parties to list all digital wallets and cryptocurrency exchanges on their disclosure forms. Failure to do so creates legal penalties that can dramatically affect the outcome of your case.
Valuing Cryptocurrency in a California Divorce
Cryptocurrency is highly volatile, creating significant challenges for divorce settlements. Bitcoin traded above $60,000 in late 2021, crashed below $20,000 in 2022, and has experienced significant swings since then. An asset worth $500,000 when you file for divorce might be worth $250,000—or $750,000—by the time your case settles.
California law uses the date of separation as the default valuation date for marital property under Family Code §2552. However, parties and courts have flexibility. Common valuation dates include:
Valuation Date | When It’s Used |
|---|---|
Date of Separation | Default under CA law; works when both parties want to move quickly |
Date of Filing | Sometimes chosen when there’s a gap between separation and filing |
Date of Trial | Used when the case is contested and assets are changing in value |
Agreed Date | Parties can negotiate a specific date in their Marital Settlement Agreement |
For highly volatile cryptocurrency holdings, you and your spouse might negotiate different valuation approaches. A spouse keeping the crypto might accept a valuation based on a 90-day or 52-week rolling average to smooth out short-term price swings. The spouse receiving cash or other assets might prefer a spot value on a date when prices are higher.
Valuation methods in practice typically involve:
- Spot value: The price on a specific date, verified using major exchanges like Coinbase, Kraken, or Binance.US. You might average prices across three exchanges at market close on the agreed date.
- Rolling average: A 30-day, 90-day, or 52-week average price to reduce the impact of daily volatility. This approach makes sense for large holdings where short-term swings could unfairly benefit one party.
- Asset-by-asset analysis: Bitcoin and Ethereum trade on liquid markets with reliable pricing. Smaller altcoins or NFTs may require separate valuation approaches, including expert appraisals.
Practical timing issues affect every cryptocurrency divorce. If you’re liquidating crypto to equalize a settlement, you need to lock in prices as close to the sale date as possible. Waiting weeks between agreeing on a price and executing the sale exposes both parties to market risk. Settlement agreements should specify exactly when and how liquidation will occur.
Staking rewards, airdrops, and DeFi yields create additional valuation complexity. If your spouse has been staking Ethereum and receiving rewards throughout 2023 and 2024, those rewards are likely community property. Airdrops—free tokens distributed to wallet holders—received during the marriage must be disclosed and valued. Yield from DeFi protocols needs documentation to understand both its value and associated risks.
My CPA background helps when evaluating competing expert reports and identifying when a forensic accountant’s valuation approach is appropriate for the assets involved. I’ve seen cases where one side’s expert used outdated pricing data or failed to account for transaction fees and slippage. Getting the valuation right often determines whether a settlement is truly equal.
Special Valuation Issues: NFTs, DeFi, and Illiquid Tokens
NFTs are non-fungible tokens—unique digital items like art, collectibles, or gaming assets. Unlike Bitcoin, where one coin equals any other coin of equal value, each NFT is different. Valuing NFTs in divorce is challenging because “floor prices” on marketplaces like OpenSea or Blur reflect the cheapest items in a collection, not necessarily what a specific NFT would sell for.
An NFT purchased for $50,000 in 2021 might have a current floor price of $5,000—but if it’s a rare item within the collection, it could potentially sell for $50,000 or more to the right buyer. Courts often need expert testimony to establish market value for significant NFT holdings.
Thinly traded altcoins and startup tokens present similar problems. If your spouse received tokens from a Silicon Beach or LA-based Web3 startup, those tokens may have:
- Low trading volume, making it hard to sell without moving the market
- Lock-up periods preventing sale for months or years
- Speculative value based on the company’s future success rather than current utility
DeFi positions add another layer of complexity. Liquidity pool tokens represent a share of trading fees but also carry “impermanent loss” risk. Yield farming rewards may be vesting over time. Understanding these positions requires documentation beyond simple wallet balances.
For illiquid or speculative crypto assets, I often recommend a cautious valuation approach—either discounting the value to account for liquidity risk or offsetting these holdings against more stable assets. A spouse who wants to keep a speculative token portfolio might take less of the home equity in exchange, balancing risk across the overall settlement.
How Cryptocurrency Can Be Divided in a California Divorce
Under California law, community property crypto is divided equally—but equal division doesn’t require identical division. The goal is that each spouse receives equal value, not necessarily that each receives the same assets. Several methods can achieve equitable division:
In-kind division means splitting the actual cryptocurrency. If the community owns 10 Bitcoin, each spouse receives 5 Bitcoin transferred to their own wallet. This approach works when both spouses understand crypto and want to maintain exposure to potential gains (and losses).
Liquidation means selling the crypto and dividing the cash proceeds. This eliminates ongoing volatility risk and gives both spouses certain, stable value. However, liquidation triggers transaction costs (exchange fees of 1-2%) and potential capital gains tax for the selling spouse.
Offsetting means one spouse keeps more crypto while the other receives more of other assets—home equity, retirement accounts, cash, or investment portfolios. This approach works well when one spouse wants to keep the crypto and the other prefers stable, traditional assets.
Division Method | Best For | Key Considerations |
|---|---|---|
In-kind split | Both spouses comfortable with crypto | Transfer fees, wallet setup, ongoing volatility risk |
Liquidation | Risk-averse parties wanting certainty | Tax consequences, exchange fees, timing of sale |
Offset | Different risk preferences | Accurate valuation critical, ensure true equal value |
Transaction details matter in any crypto division. Network fees for Bitcoin or Ethereum transfers can range from a few dollars to over $50 depending on network congestion. Selling large positions on exchanges may involve slippage—the difference between expected price and actual execution price. Settlement agreements should specify who bears these costs.
Security during transfer requires careful planning. For significant holdings, parties sometimes use temporary multi-signature wallet arrangements requiring both spouses (or their attorneys) to approve transactions. A neutral third party or escrow service can facilitate transfers. Settlement agreements should include step-by-step transfer instructions without exposing private keys in public court filings.
When only one spouse understands cryptocurrency, the settlement structure must protect the less technical spouse. This might mean liquidating crypto and providing cash, offsetting crypto with other property, or including detailed transfer assistance in the settlement agreement. No spouse should be forced to manage digital wallets they don’t understand just to receive their fair share.
Tax Consequences of Dividing Cryptocurrency
Federal tax law generally treats transfers of property between spouses as part of a divorce as non-taxable events. Under IRC §1041, if you transfer Bitcoin to your spouse pursuant to a divorce decree, neither of you pays tax at the time of transfer. The receiving spouse takes your original cost basis and holding period.
This tax treatment changes dramatically if crypto is sold. If you sell Bitcoin in 2025 to generate cash for equalizing the settlement, you—the selling spouse—will likely owe capital gains tax. The tax rate depends on your holding period and income level. Short-term gains (assets held less than one year) are taxed as ordinary income—up to 37% federal plus 13.3% California state tax. Long-term gains receive preferential rates but can still exceed 20% federal plus California tax.
Tracking cost basis across wallets creates tax reporting challenges. When you split 10 Bitcoin and transfer 5 to your spouse, you need to determine which specific coins (by acquisition date and price) went to which spouse. Poor recordkeeping from earlier years—especially 2016-2019 trading across multiple exchanges before reporting requirements tightened—complicates future tax returns.
The IRS treats cryptocurrency as property, not currency, and requires detailed reporting on Forms 8949 and Schedule D. Frequent trading, DeFi activity, staking rewards, and airdrops each create separate tax reporting obligations. How you structure the division affects both spouses’ tax situations for years to come.
My CPA license allows me to coordinate directly with tax professionals and forensic accountants to minimize long-term tax exposure within settlement structures. We consider not just the current division but also the tax consequences when each spouse eventually sells their share. This planning should happen during settlement negotiations, not after the divorce is final.
Tracing, Commingling, Mining, and Staking: Advanced Crypto Issues
Tracing means following cryptocurrency from its initial source through various transactions to determine whether specific coins are separate property or community property. Blockchain technology makes this possible because every transaction is recorded on a public ledger—but interpreting that ledger requires expertise.
Here’s a concrete example: A spouse bought 2 Bitcoin in 2015 for $500 each (separate property—acquired before marriage). During the marriage in 2020, they purchased an additional 1 Bitcoin for $10,000 using salary (community property). All 3 Bitcoin sit in the same wallet address. Forensic analysis can examine the transaction history, identify which coins came from the pre-marriage purchase, and calculate the separate versus community portions.
When separate and community funds are heavily commingled and records are poor, California courts typically presume assets are community property. The spouse claiming separate property bears the burden of proof. If you brought Bitcoin into your marriage and want to keep it separate, you need documentation—original purchase records, wallet transaction histories, and clear evidence that no marital funds were mixed in.
Mining and staking generate income that’s typically community property if it occurs during the marriage. Common scenarios include:
- Mining operations: A spouse running mining rigs in the garage since 2019, generating new coins monthly. Those coins—and the equipment used to produce them—are likely community property.
- Staking rewards: A spouse staking Ethereum on a major platform and receiving percentage-based rewards. Monthly rewards earned during the marriage are community income.
- DeFi yields: Interest from lending crypto through DeFi protocols, liquidity pool fees, and yield farming rewards all constitute income during the marriage.
Airdrops—free tokens distributed to existing wallet holders—received during the marriage also need disclosure and valuation. If your spouse received valuable airdrop tokens in 2021 or 2022, those assets are part of the marital estate even if they cost nothing to acquire.
I regularly handle these advanced tracing and valuation issues in high-asset LA divorces. The work requires understanding both blockchain technology and California family law—knowing what transactions mean technically and what they mean legally for your community property rights.
Business Ownership, Startups, and Token-Based Compensation
Los Angeles tech and entertainment professionals increasingly receive compensation in tokens, equity-like cryptocurrency, or platform credits tied to startups and Web3 projects. These arrangements create overlap between cryptocurrency issues and traditional business valuation challenges.
Token-based compensation often includes:
- Vesting schedules where tokens are earned over time (e.g., 25% per year over four years)
- Lock-up periods preventing sale for months or years after vesting
- Dilution risk if the company issues additional tokens
- Contingent rights that depend on company performance or continued employment
When one spouse receives vesting tokens from a Santa Monica startup over the period 2021-2026, the community property portion includes tokens that vested during the marriage. Tokens vesting after separation may be partially community property depending on when the work earning them was performed.
As a CFLS and CPA, I often coordinate with business valuation experts and forensic accountants to value both the underlying company and its associated token ecosystem. We assess which portions are community versus separate, apply appropriate discounts for illiquidity and speculation, and integrate the token value into the overall marital estate division.
If your divorce involves significant startup equity, token-based compensation, or interests in Web3 companies, these assets require the same careful analysis as traditional business interests—with additional complexity from cryptocurrency markets.
Local Los Angeles Considerations and How My Firm Can Help
LA County family courts—Stanley Mosk Courthouse in Downtown LA, Van Nuys, Long Beach, and Pasadena—now regularly handle divorces involving significant digital assets. Judges expect full electronic disclosure of exchange accounts and wallet addresses. The “I didn’t understand I had to disclose crypto” excuse carries less weight each year as courts become more familiar with these issues.
My Spanish-speaking staff and I regularly assist clients throughout Los Angeles, Beverly Hills, Santa Monica, the San Fernando Valley, and surrounding communities with cryptocurrency-intensive divorces. Whether you’re dealing with a straightforward Coinbase account or a complex portfolio of DeFi positions, mining equipment, and NFT collections, we understand both the technical and legal issues involved.
I have extensive experience cross-examining financial experts and presenting clear evidence about wallet addresses, exchange accounts, and transaction histories to LA County judges. Blockchain technology can seem intimidating, but the underlying facts—who owned what, when they acquired it, and what it’s worth—can be explained clearly when you have the right expertise.
If you’re the spouse who doesn’t understand cryptocurrency, California law still protects your financial interests. The disclosure requirements apply regardless of which spouse controlled the crypto. Forensic tools exist to uncover hidden assets. Courts can order the knowledgeable spouse to provide detailed accountings and transfer assistance. You shouldn’t receive less than your fair share simply because your spouse managed the crypto accounts.
Next Steps if Your Divorce Involves Cryptocurrency
If your divorce involves cryptocurrency or you suspect your spouse has hidden crypto holdings, take these concrete steps:
- Gather exchange statements: Download complete account statements from Coinbase, Binance.US, Kraken, Gemini, and any other platforms you have access to. Request transaction histories covering at least 2020-2025.
- Locate hardware wallets and recovery phrases: Identify any physical wallet devices (Ledger, Trezor) in your home. Note where seed phrases or recovery documents are stored—but don’t move or alter anything without legal advice.
- Review traditional financial records: Look for bank transfers to crypto exchanges, PayPal or Cash App crypto purchases, and IRS forms showing digital asset questions answered “yes” or 1099 forms from exchanges.
- Avoid moving or selling assets: Once divorce is filed, automatic restraining orders prohibit both spouses from disposing of assets. Moving crypto without court permission can result in serious legal consequences.
For high-asset or business-owner cases involving cryptocurrency, working with a California family law attorney who understands both digital assets and tax implications is essential. The intersection of blockchain technology, community property law, and federal tax rules creates complexity that requires specialized knowledge.
If you’re facing a divorce involving cryptocurrency—whether a straightforward situation or a complex portfolio with multiple wallets, DeFi positions, and business-related tokens—I invite you to contact my Los Angeles office to schedule a confidential consultation. We’ll review your overall marital estate, identify the digital assets at issue, and develop a strategy to protect your financial interests. Spanish-language support is available for clients who prefer it.
