The Rise of Digital Assets, Like Bitcoin and NFTs, Is Complicating Divorce Settlements

Living in a digital world is changing how divorce settlements are handled. Due to the rise of Bitcoin, non-fungible tokens (NFTs), cryptocurrency, and other online accounts, new challenges are present in divorce proceedings. If you are considering filing for divorce and own or suspect your spouse owns digital assets, now is the time to speak with an experienced Columbia divorce lawyer who can help you through the divorce process.

What are digital assets?

Digital assets are items that are kept in digital format(s). In recent years, these types of assets have become more common and may even represent a large share of someone’s wealth. According to Investopedia, one bitcoin was worth over $70,000 in April 2024. The IRS considers the following digital assets:

• Convertible virtual currencies and cryptocurrencies (Bitcoin, Ethereum, Dogecoin)
• Stablecoins (cryptocurrencies tied to another asset, like gold, which makes them more stable)
• Non-fungible tokens (NFTs) (cryptographic tokens that exist on a blockchain and are not replicable)

According to some surveys, just over one in four millennials owned Bitcoin as of 2023. As a result, when going through a divorce, it is not uncommon for challenges and complications related to this newer form of asset to quickly emerge. This is because, unlike traditional assets, digital assets are intangible, which makes them much harder to find, evaluate, divide, or transfer fairly among spouses.

What if a spouse hides cryptocurrency?

One of the main problems with cryptocurrency is that it can be difficult to trace. While spouses are meant to disclose all assets so that the court can divide them fairly in a divorce, some people may try to hide funds to keep them for themselves. This problem can arise with traditional assets as well, but in the case of cryptocurrency, it can be more challenging to find the money. Also, while attorneys can subpoena traditional banks to locate funds, many crypto exchanges don’t offer the same opportunity for discovery. There are forensic experts who can help locate evidence of cryptocurrency by analyzing financial documents to find purchases on crypto exchanges and other evidence that a person has hidden some assets. Although such experts may be costly, there are times when a spouse might be hiding large sums in cryptocurrency, making the efforts worthwhile.

Valuation of digital assets in divorce

Assets like cryptocurrency and NFTs are notoriously volatile. Even in a short period of time, the value may fluctuate significantly. It can, therefore, become difficult to divide these assets in a divorce. For instance, if one spouse receives the cryptocurrency and the other receives a bank account to offset the other spouse’s digital assets, the cryptocurrency may suddenly increase or decrease in value, making the arrangement no longer equitable. The parties might want to work with financial experts to properly assess the current value and projected future performance of digital assets.

How are digital assets divided in divorce settlements in Columbia, MD?

Any digital asset bought during the marriage is marital property according to Maryland law. This means dividing it will be done the same way other marital property is divided. Maryland is an equitable distribution state. Therefore, all marital property is divided in a way considered “fair” by the courts, although not necessarily equal.

A crypto wallet or funds in a crypto exchange will be treated the same as money in a bank account. A few other factors that the courts will take into consideration when determining how to divide digital assets include:

• How long the spouses were married
• How much income each spouse makes
• How much each spouse has contributed
• Whether a prenuptial or postnuptial agreement was created and is available

Digital assets and child support

Because digital assets, like Bitcoin or NFTs, now make up a large part of many individuals’ financial portfolios, courts may consider them when calculating child support. While child support typically involves income, some high-value assets, especially income-generating assets, may influence the court’s decision as well. If a party earns money selling those assets, this could be factored in as income.

What if I do not disclose my digital assets?

In divorce proceedings, you must disclose all of your assets, including digital ones. If you fail to disclose your digital assets and they are later found, you could face serious consequences, including:

• Having to pay the ex-spouse’s attorney fees
• Fines and penalties
• Jail time (although rare, this might occur in serious perjury cases or fraud)

The judge will not look favorably on hiding your digital assets, which could jeopardize your case and result in your spouse receiving more of the marital property. It’s likely that you will need to sign affidavits and other binding documents as a part of the proceeding, which means the court can consider the lies perjury. Additionally, if the funds change the court’s child support determinations, you might have to pay back child support as well or face other penalties. This is why you should always disclose all digital assets to your divorce attorney.

Dividing bitcoin, NFTs, cryptocurrency, and other digital assets can be confusing. With the help of a Columbia divorce attorney from McCabe Russell, PA, you can have peace of mind knowing that your rights are protected. To learn more about digital assets and how we can assist you throughout the divorce process, please call our office or submit our contact form today. We have offices in Columbia, Bethesda, Fulton, and Rockville for your convenience.