A digital asset is anything of value that can be stored digitally, including movies, video games, iTunes, blogs, or even social media accounts. More recently, digital assets in divorce have become a focus as more people invest in cryptocurrencies and NFTs with large amounts of value at stake. You might be wondering what will happen to your cryptocurrency and NFT portfolio in the event of a divorce.
Like with other assets, exes must decide how to divide these digital assets in a divorce. However, it can be a tough task to assess the value of these digital assets and split them up during separation. Knowing the different types of assets and learning how to assess their value will help ensure you get your fair share.
What are Digital Assets?
A digital asset is property that can be stored in a digital form. They are anything you can buy, sell or hold online, but can’t see or touch. While digital assets aren’t tangible, they are still considered marital property if acquired during the marriage. Movies stored on an iPad, video games, and cryptocurrencies are all forms of digital assets.
Digital assets include a wide range of intangible properties, including:
- Internet businesses and online storefronts
- Non-fungible-tokens or NFTs
- Collection of digital photos or videos
- Video games
- Websites and domain names
- Digital artwork
- Data storage accounts
- Airline miles
- Digital documents
- Music collections
- Shared social media accounts
- Streaming media accounts
While you may assume that dividing digital assets in divorce is relatively easy, it can become quite complex. Some couples have built virtual worlds together in online-role playing games, while others may have collected NFT artworks together. Shared streaming accounts and frequent flyer miles which some people deem to have high value are considered digital assets. In today’s world, the accumulation of virtual assets has further complicated the property division process.
Create an Inventory for Your Divorce Digital Assets
While a divorce is pending, both you and your spouse will need to take an inventory of all the digital assets owned, just like you would with physical assets. Each party should make a list of everything that would be considered marital property. Additionally, make sure to ensure these digital assets are in order of importance to you. From this, you can begin to create a plan on how you’d like to negotiate for certain digital assets that you have a particular interest in.
What about Income Generated by Digital Assets?
Some digital assets can produce income for one or both parties in the marriage. For example, blogs, e-commerce stores, websites, and social media accounts can generate a large amount of money. If you’re heavily involved with online businesses, it is even more imperative for you to track and record these digital assets so that you receive an equitable distribution.
How are Digital Assets are Divided in a Divorce?
Although intangible, digital assets are considered marital property and are subjected to the same property division and valuation process as tangible assets during divorce proceedings. They must be disclosed to ensure fair distribution of assets.
While all states in the U.S. recognize the importance of defining separate property and marital property, some states can differ in their laws. Generally, the states either use equitable distribution or community property principles to divide property.
Equitable distribution takes into account many factors such as the spouses’ careers and whether a spouse was a homemaker and did not earn income. However, for people who live in a community property state, all property acquired during the marriage is typically subject to an even 50-50 split as a starting point.
Texas is a community property state, so all marital assets in a divorce will generally be subjected to a 50-50 split. However, spouses can agree on an unequal split or make arguments for one in court, and the judge will consider each individual case. Factors include each spouse’s educational attainment, their health, future employability, custody of the children, the income of each spouse, and the fault for the end of the marriage.
As of now, all states except for California, Arizona, Louisiana, Idaho, New Mexico, Nevada, Washington, Wisconsin, and Texas follow the principles of equitable distribution. In the laws of equitable distribution, the ownership of property is not considered to be 50-50. Factors that make the division unequal include employability and educational attainment, the financial needs of each spouse, the income and expenses of the spouses, and the age and health of each spouse.
Since the distribution of digital assets in a divorce can quickly become complex, it’s important to hire professional attorneys to ensure you get the best outcome possible.
Can One Spouse Buy Out or Trade With Another Spouse?
In some cases, one spouse may care more about a particular digital asset than the other spouse. In this case, one spouse can buy out the other spouse’s share of the digital asset.
For instance, if the husband is a gaming enthusiast and desperately wants to hold onto the virtual assets they have accrued, they can buy out their ex-wife’s share. Another option is to give up something of equal value like a joint iTunes or Netflix account. It’s ideal to discuss with your ex and agree on the property division details in a divorce agreement, and present the agreement to the judge for the judge’s ruling. This is the best way to ensure you can obtain the assets you want most.
Why Dividing NFTs Can Be Problematic
In the last several years, there has been a rise in the types of digital assets available to consumers. One of the many includes the growing popularity of NFTs, including NFT artworks, sports cards, video albums, or other rare collectibles.
Non-fungible tokens or NFT represent a person’s ownership of unique digital items. Each NFT item has unique identification codes that make them unique from each other. This means that each asset is unique and cannot be duplicated.
As you can imagine, NFT is a marital asset that can be quite difficult to divide equally. That’s because it fluctuates in value on a daily basis. There are two reasons why the value has such wide variations:
- Owners must purchase them using cryptocurrency like Ethereum. If the price of Ethereum changes, the value of the NFT item also fluctuates.
- The market value changes based on people’s interest.
Besides the fluctuating value, NFTs are digital collectibles where the transfer of the asset is not always possible. The asset can be divided for distribution only if the owner decides to sell the asset for proceeds in cryptocurrency or cash. As with other tangible assets like a car, only one person can have it. Therefore, if the owner wants to keep the NFT, they’ll have to give up something of equal value.
How NFTs Can Be Hidden in Property Division
Digital assets like cryptocurrency and NFTs can be used to hide marital assets, particularly for high-net-worth individuals.
Since cryptocurrency and NFTs are built on the blockchain, asset owners have the privilege of anonymity. The ownership is tied to keys instead of a person’s identity.
Legally, not all NFTs are treated as taxable securities. This creates potential financial gray areas where a spouse going through a divorce may decide not to disclose what NFTs they own.
How to Find Cryptocurrency, NFTs, and Other Digital Assets in Divorce
If you suspect that your spouse has a substantial cryptocurrency holding or is hiding a secret stash of NFTs behind your back, you may want to do some research. Here are some tips for finding your spouse’s hidden digital assets.
If you have access to them, check your ex’s bank accounts and bank statements to look for any suspicious patterns of withdrawals. Look at where the money is going in the account details. If you notice any money is going to cryptocurrency exchanges or platforms like Paypal that allow users to make cryptocurrency investments, this could be a sign of the other spouse holding cryptocurrency without your knowledge.
Digital Wallet and Cryptocurrency Exchange Apps
A good indicator that your spouse owns cryptocurrency is by checking their device for exchanges or digital wallet apps. NFTs are sold using crypto so a person must own cryptocurrency to purchase them. If you have access to the other spouse’s email accounts, there may also be transaction information when digital goods were bought and sold.
Seek Legal Advice if You’re Unclear About Digital Asset Division
The division and transfer of digital assets are becoming more challenging and will continue to present problems in separation plans and divorce agreements. Laws may be updated frequently to account for any new form of digital asset that arises.
If both parties can’t agree on any aspect of the property division or need help with the divorce process, it’s best to contact an experienced divorce attorney or family law firm. A qualified family law attorney can help you understand the process of dividing marital assets, how digital assets are considered, and how you can protect your digital assets or claim the assets you rightfully own. You may be surprised by the digital assets you have ownership of and how much they are worth.
Contact us today to learn more about digital assets in divorce and how to get a favorable settlement.