Cryptocurrency and Divorce—Taking the “cryptic” out of the division of digital assets

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In any divorce, in addition to an enormous emotional burden and complicated personal logistics, there are three significant issues that concern the court:

Besides the traditional forms of property (homes, land, vehicles, furniture and appliances, antiques and collectibles, jewelry, businesses, and so forth), modern couples, particularly millennials, frequently possess a wide variety of digital assets.

Some might not ultimately be worth a lot of money (for example, downloaded e-books, movies, games, or music); some, such as family photos, have only personal, sentimental value and can be copied and shared; but others, such as Intellectual Property, cryptocurrency, and NFTs (non-fungible tokens) may be very high-value assets.

Cryptocurrency refers to digital currency (Bitcoin, Ethereum, Dogecoin, Litecoin, etc.) in which all transactions and accounting are secured by encryption in algorithms rather than through a centralized authority. Cryptocurrency is fungible, meaning it represents equal, interchangeable, divisible units. (It can be helpful to think of it like one dime equals another dime equals any dime, and any dime can be divided into 10 pennies.)

An NFT is a one-of-a-kind digital asset (such as a digital artwork or collectible) or a singular digital representation of a tangible asset (such as real estate). An NFT is non-fungible, meaning unique, non-duplicatable, and indivisible.

California is a community property state, which means that, with a few exceptions, ALL assets acquired during the marriage are considered shared property and will be divided 50/50 in a divorce. Each partner is required to disclose 100% of their assets.

Although they are a newer consideration, the court currently applies the same rules to cryptocurrency and NFTs as to typical property—digital assets acquired during the marriage must be disclosed and distributed equally.

While on its face, community property law seems straightforward, in practice, property division can be complex (and contentious). In our constantly evolving digital climate, the law sometimes needs help to keep pace with emerging technology, so digital assets further complicate the property division process.

First, it can take time to determine ownership of digital property. Sometimes, one spouse invests in NFTs or Bitcoin without telling the other. While this is not necessarily underhanded in and of itself, online tools such as digital wallets can make these assets hard to trace. It’s important to know that it is illegal to conceal any assets intentionally, digital included, in your divorce; doing so may carry severe penalties including the court can award the entire asset to the other spouse once discovered.  If you believe your spouse is attempting to hide digital assets, you may need a digital forensics expert; however, the investigation process can be time-consuming and costly, so you’ll need to weigh whether it’s worth it carefully. In certain circumstances, your attorney can also serve a subpoena to gain access to your spouse’s electronic devices.

Second, even assuming both partners know what digital assets are jointly owned, the volatility (significant fluctuation) of cryptocurrency and NFTs can make valuation quite challenging. For example, a modest investment in crypto or an NFT may have skyrocketed just before you separated but then dropped dramatically by the time you divided the community estate. In this case, a volatility formula can be applied. (Note: while cryptocurrency can be divided quite simply, an NFT is a unique item that cannot be split—only its determined value or the proceeds from the sale).

As with every significant issue in your divorce, it is preferable to work together to reach a mutual agreement regarding your digital assets rather than go to trial. To make this process go as smoothly as possible, you need an attorney who is experienced in complex property divisions. The skilled and caring California family lawyers at SFLG specialize in high-net-worth divorces. They can help you reach the best possible outcome in your dissolution through a settlement or litigation.

By Debra Schoenberg


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