Co-Authored By: Carolyn C. Soeder, Principal & Lauren K. Mayell, Law Clerk
In the world of Bitcoin and Non-Fungible Tokens (NFT), where money is no longer in your hands, but rather on a screen, it is easy for trades and money movement to occur in the blink of an eye. For many this opens up a platform to share art and facilitate business. However, these digital assets can cause issues when it comes to divorce.
What are Digital Assets?
Digital assets are commonly defined as anything holding value which is stored and accessed online and/or electronically. Some common examples include:
- Cryptocurrency
- NFTs and Digital Artwork
- Internet Businesses
- Videogames
- Websites and Domain Names
- Airline Miles
- Music Collections and Music Accounts
- Shared Social Media Accounts
- Shared Streaming Accounts – Netflix, Hulu, etc.
Cryptocurrency is one of the most common digital assets that causes issues in the legal field. Cryptocurrency is digital currency that is not tied to any government or third-party banking system. Due to its lack of connection to outside entities, it has little to no regulation. Some examples include Bitcoin, Ethereum, Tether, Binance Coin, Dogecoin, and Chainlink.
Common Problems Pertaining to Cryptocurrency in the Divorce Process
Though viewed the same as physical property in the eyes of the court, cryptocurrency can create unique challenges during a divorce, including:
Discovery & Access
With no connection to the physical world, and little to no digital trail due to a lack of regulation, cryptocurrency is often hidden and intentionally kept from the eye of the opposing spouse. Further, since many cryptocurrencies operate within a peer-to-peer network, it can be difficult to decipher who to subpoena for records. A skilled attorney knows there is always a digital trail to find cryptocurrency. If you know or suspect where funds used to purchase an interest in cryptocurrency were transferred, share this with your attorney. A cold wallet is a cryptocurrency storage device that stores private cryptocurrency keys offline, usually on a physical device like a USB or flash drive. These may cause issues if the party is unaware that the crypto is being held offline. However, if the spouse is aware of the cold wallet, they should confirm it is being held in a secure location.
Valuation
If the party can find the digital asset and gain access to its information, the asset will require valuation for the purpose of division in divorce. Yet, cryptocurrency values change so often that it can be hard to determine at which point the value shows an accurate representation of the asset’s value. Courts will generally value the digital asset based on the day that a party filed for divorce.
How You Can Prepare for Divorce When Digital Assets Are an Issue
You can take the following steps to ensure that your digital assets are secured and accounted for during divorce.
Keep an Inventory
- Keep a list of all the digital assets of your marriage.
- Even those which you may not have access to – If you know/believe they exist, write them down.
- o If your spouse is the one monitoring and managing the investments, talk to your spouse about your digital assets so you can keep an inventory.
Obtain Usernames/Passwords for Accounts
- This includes private keys to all cryptocurrency accounts.
- If you are aware of digital assets, try to obtain usernames and passwords to all accounts.
Document Your Assets
- Try to obtain updated values/balances from all cryptocurrency accounts.
- Any cryptocurrency capital gains, capital losses, and taxable income must be reported on your tax return, making your annual tax returns a great place to check for cryptocurrency usage
Don’t Hide Your Assets
- Although it may seem easy to do, there are significant penalties for hiding assets in divorce, including treble damages and attorney fees.
Inform Your Attorney
- When discussing your assets with your attorney, do not forget to mention your digital assets, or your concerns regarding them.
For more information or to seek counsel from our family law practice, please reach out to request a consultation or call us at 216-696-1422.
