In today’s digital age 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 technology creates a platform to share art, build wealth, and facilitate business with ease. However, when it comes to divorce, these same digital assets can introduce unique challenges, particularly in identifying, valuing, and dividing them.
What are Digital Assets?
Digital assets are broadly defined as anything of value that exists in digital form and can be stored or accessed electronically. Some common examples of digital assets include:
- Cryptocurrency
- NFTs and Digital Artwork
- Internet Businesses
- Video Games
- Websites and Domain Names
- Airline Miles
- Music Collections and Music Accounts
- Shared Social Media Accounts
- Shared Streaming Accounts – Netflix, Hulu, Spotify, etc.
Cryptocurrency is one of the most common and complex digital assets to address in the legal field. Unlike traditional currency, cryptocurrency is a decentralized form of digital currency that operates independently of governments or third-party banking systems. Because it is not regulated by outside entities, it often lacks oversight and consistency in valuation.
Well-known examples of cryptocurrency include:
- Bitcoin
- Ethereum
- Tether
- Binance Coin
- Dogecoin
- Chainlink
Common Complications of Cryptocurrency in Divorce
Although in the eyes of the court, cryptocurrency is viewed the same as physical property, cryptocurrency can create unique challenges during a divorce, particularly when it comes to discovery, access, and valuation.
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.
An experienced attorney understands that cryptocurrency transactions almost always leave a digital trail. If you know or suspect where funds were transferred to purchase cryptocurrency, it is important to share this information with your attorney.
One area of concern involves cold wallets, physical devices, such as USB or flash drives, that store private cryptocurrency keys offline. Cold wallets can complicate divorce proceedings if one party is unaware that the assets exist. However, when both parties are aware of a cold wallet, steps should be taken to confirm that it is properly accounted for and that 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.
Preparing for Divorce When Digital Assets Are Involved
Working closely with an experienced attorney, you can take the following steps to ensure that your digital assets are properly secured, documented, and accounted for during the divorce process.
Keep an Inventory
When managing digital assets during a divorce, it’s important to maintain a clear and comprehensive inventory of all assets. Make a list of all digital assets held during the marriage, including those you may not have direct access to. Even if certain accounts or investments are primarily managed by your spouse, documenting what you know or suspect exists can help ensure nothing is overlooked. Having open communication about shared digital assets can make this process more complete and accurate.
Obtain Usernames/Passwords for Accounts
Access is key. Make sure you have usernames, passwords, and private keys for any cryptocurrency or digital accounts you own. Being able to access your accounts allows you to accurately document balances, transactions, and holdings.
Document Your Assets
Keeping detailed records of your digital assets is equally important. Updated account values and balances from all cryptocurrency accounts, along with information from tax returns such as capital gains, losses, or income, can provide an essential record of digital activity and ownership.
Don’t Hide Your Assets
It’s also critical to be transparent about your assets. Attempting to hide digital holdings can result in serious legal consequences, including penalties, treble damages, and attorney fees.
Inform Your Attorney
Finally, when discussing your assets with your attorney, be sure to keep them informed about all of your digital assets, as well as any concerns you may have regarding them. Collaborating closely with a knowledgeable attorney ensures your digital assets are properly identified, secured, and accounted for throughout the divorce process.
For more information or to seek counsel from our Family Law group, please reach out to request a consultation or call us at 216-696-1422.
