In the past, dividing marital property in a divorce meant splitting the family home, cars, and retirement accounts. Today, the landscape is far more complex. The rise of digital assets like cryptocurrency, NFTs (non-fungible tokens), and other blockchain-based investments has introduced a new and challenging frontier in divorce law.

For many couples, these assets represent a significant portion of their wealth. However, their decentralized nature and extreme volatility can make them difficult to find, value, and divide. At LforLaw, we stay on the cutting edge of family law to ensure our clients’ financial futures are protected in this evolving digital world.

Is It Marital Property? The First Question

The first step in handling any digital asset in a divorce is to determine its legal status. In the U.S., most states operate under either community property or equitable distribution laws.

• Community Property States: Assets acquired by either spouse during the marriage are considered community property and are generally divided equally. This includes cryptocurrency or NFTs purchased with marital funds, even if they are in a wallet under only one spouse’s name.
• Equitable Distribution States: Marital property is divided fairly, which doesn’t always mean equally. The court will consider various factors to determine a just distribution.

Generally, any digital assets you or your spouse acquired during the marriage are considered marital property and are subject to division, unless a valid prenuptial or postnuptial agreement states otherwise.

The Challenge of Valuation and Hiding Assets

Unlike a bank account, cryptocurrency and NFTs don’t have a single, fixed value. They are also notoriously difficult to trace. This presents two major challenges in a divorce:

• Extreme Volatility: The value of cryptocurrencies can fluctuate dramatically, even within a single day. Courts often rely on a specific valuation date (like the date of separation or the date of trial) to determine the asset’s worth.
• Concealment: Because digital assets are decentralized and can be stored in private digital wallets, one spouse may attempt to hide them to avoid division. This is a form of asset hiding, and courts take it very seriously.

To combat these issues, a lawyer may work with a forensic accountant or a digital asset expert. These specialists can analyze a spouse’s financial records, look for transactions with crypto exchanges, and even trace activity on the blockchain to uncover hidden assets. Hiding assets can result in severe penalties, including a disproportionate division of remaining marital property or even contempt charges.

Three Ways to Divide Digital Assets

Once digital assets are identified and valued, they can be divided in several ways:

1. In-Kind Division: Each spouse receives a portion of the actual cryptocurrency or a specific NFT. This method shares the risk of future value fluctuations equally.
2. Offsetting with Other Assets: One spouse keeps the digital assets, and the other receives an equivalent value in a different, more stable asset, like cash or equity in the family home.
3. Liquidation: The digital assets are sold, and the cash proceeds are divided between the spouses. This provides a clean break but may trigger significant capital gains taxes.

Protecting Your Financial Future

Given the complexity and risk associated with digital assets, it’s more important than ever to have experienced legal guidance. An attorney who understands both family law and the intricacies of blockchain technology can help you:

• Ensure full and honest financial disclosure from your spouse.
• Work with experts to uncover hidden assets.
• Accurately value all digital property.
• Negotiate a division that protects your financial interests.

Don’t let the complex nature of digital assets put your financial future at risk. If you are a high-net-worth individual or suspect your spouse owns cryptocurrency or NFTs, it’s crucial to seek expert legal advice.

At LforLaw, we are prepared to handle the unique challenges of divorce in the digital age. Contact us today for a confidential consultation to discuss your case and learn how we can help you navigate this new legal frontier.