Complex digital assets are advanced electronic representations of rights, value, or contracts. They use blockchain technology or a programmable distributed ledger to automate, record, and secure transactions. These assets are complex because they commonly use smart contracts. In turn, these may include self-executing code on a blockchain that triggers automatic actions when specific conditions are met.
Complex digital assets can represent complex financial instruments, fractional ownership, or physical claims instead of simple currency. Such assets are also complicated because their ownership updates may be verified across independent nodes instead of in a single central database.
Examples of complex digital assets include security tokens, tokenized real-world assets, and advanced non-fungible tokens (NFTs). Security tokens are regulated digital assets that function like traditional financial securities, including bonds, stocks, or fund shares.
Tokenized real-world assets are digital representations of physical property, equipment, or fine art mapped into a blockchain. Advanced non-fungible tokens (NFTs) are unique tokens that go beyond basic digital art in order to grant specific access identities, rights, or programmable royalties.
These types of assets may also be contained in a digital assets trust.
Common Types of Digital Assets Spouses May Need to Disclose
There are numerous types of digital assets that spouses may be required to disclose during a divorce, including cryptocurrency, online investments, digital banking, NFTs, digital wallets, and others. These may be, either intentionally or accidentally, omitted or obscured on standard court forms.
With current forms of cryptocurrency, digital banking, and online investments, it is much easier for assets to be missed. Courts now expect parties to completely disclose all of their assets, and they will penalize a party who hides their financial details.
During a divorce proceeding, both spouses have a strict legal duty to fully disclose all of their property, which includes exchange accounts, digital wallets, and decentralized finance (DeFi) holdings. Because the general financial disclosure forms do not typically include dedicated fields for blockchain assets, it can be easier to omit them, whether intentionally or unintentionally.
A party may also use a self-custodial, private wallet or an alternative payment processor, thinking that their digital wealth cannot be tracked.
How Do Complex Digital Assets Factor in During a Divorce?
Complex digital assets, such as online businesses, cryptocurrency, NFTs, and digital accounts, are treated as property that is subject to division during a divorce. Digital assets that are acquired during an individual’s marriage are typically considered to be marital assets or community property, while assets that were owned before the marriage will remain separate.
Both spouses in a divorce proceeding are required to fully disclose all of their digital holdings. If a party hides digital assets on their divorce financial statement, it can result in severe court penalties, contempt charges, and a potentially unfavorable division of property.
What Documents Do You Need for Divorce When Digital Assets Are Involved?
When digital assets are involved, there are several types of documents that the parties may need, including a sworn financial affidavit, centralized exchange statements, blockchain transaction histories, and other documents to fully disclose and divide a married couple’s digital assets.
Sworn Financial Affidavit or Statement
This statement needs to list all of a party’s digital asset holdings, including their virtual currency types, public wallet addresses, and exchange accounts. Failing to list all of these types of properties in a mandatory financial disclosure can result in court rejections or penalties.
Exchange Account Statements
A party should provide full statements from any centralized trading platforms that show the balances, trading logs, and Know Your Customer (KYC) identity verification files. This can include platforms such as Binance and Coinbase.
Transaction Histories and Ledgers
Exported transaction records and public ledger histories can help determine when virtual tokens or coins were acquired by a party or parties. During divorce property division, this can prove whether they count as separate or marital property.
Other Documents
There are also other supporting financial and indirect records that may be needed in these situations, such as bank and credit card statements and tax returns. Statements can show information about purchases and transfers, and tax returns often document capital gains, losses, and digital asset income forms.
There are also legal steps parties can take to obtain information, such as written interrogatories and formal requests for production that can be used to compel someone to produce their private keys, API logs, or seed phrase records.
What Are a Spouse’s Disclosure Duties During Divorce Regarding Digital Assets?
During a divorce, a spouse is required to fully and honestly disclose all of their digital assets, just as they are required to disclose all of their traditional property. This includes all of a party’s digital holdings, including exchange usernames, wallet addresses, private keys, and hardware or cold storage devices.
Disclosure also includes transaction histories, tax filings that report trading or mining income, and electronic communications or application screenshots that show digital asset activity. Digital assets that were obtained during a marriage are typically treated as marital property, while inherited or pre-marital holdings require clear transaction tracing to show that they should remain separate property.
If a party does conceal information or undervalue their digital wealth, it can result in court-imposed sanctions, contempt charges, or an award that grants a larger share of the property to the other spouse. Courts take deliberate omissions very seriously, which can negatively impact the concealing party’s credibility in support and property division determinations.
If a party is suspected of hiding assets, the court may authorize a subpoena to banks or crypto exchanges to trace transfers, which can potentially shift costs to the non-compliant spouse.
What Are Some Legal Issues Associated With Digital Assets and Divorce?
There are legal issues that may be associated with digital assets and divorce, including valuation, concealment, discovery, and tax liabilities. There are disclosure requirements in prenups as well as during divorce proceedings. These issues may arise from intentional or unintentional conduct on the part of the parties involved.
Valuation
There may be issues with valuation of digital assets for many different reasons. Tokens and cryptocurrencies can change value daily, which can make it challenging to determine a fair price for division.
Online businesses and monetized social media accounts require specialized key performance indicators in order to assess value. Digital art and non-fungible tokens lack standard market pricing, which can make valuation difficult.
Concealment
A party can store crypto in a cold-storage or decentralized wallet using private keys that only they know. It can often be easier to conceal or undervalue online holdings than a traditional bank account.
Discovery
Lawyers often have assistance from blockchain analysts or forensic accountants to track a party’s wallet history and exchange records. They can also use subpoenas to compel data from centralized platforms to link digital activity to real identities. This can be helpful in many cases, for example, if a business owner is hiding income in a divorce.
Tax Liabilities
Tax authorities treat cryptocurrency as property instead of standard currency. Selling assets during separation or selling or transferring digital assets during a divorce settlement may trigger unexpected tax liabilities.
Who Uses Digital Assets?
Digital assets may be used by any individual, not just wealthy individuals or couples. Some people use digital tools or applications, and some individuals may invest small amounts in digital forms of currency or cryptocurrency. Institutions and industries also use digital assets for payments, investments, and operational efficiency.
How Can an Attorney Help Me With Digital Asset Issues?
An attorney can be very helpful if someone has digital asset issues or questions, such as how to protect assets from divorce, what documents do you need for divorce, and how to divide assets in divorce. They have access to court processes, including subpoenas, that allow them to obtain information from centralized platforms to obtain identity data and transaction histories.
Lawyers can also work with forensic experts, such as forensic accountants, to track information related to digital assets. If a party exhibits sudden secrecy about their passwords, unusual cash withdrawals, or unfamiliar device notifications, it can point to hidden digital portfolios that lawyers can help uncover.
Should I Hire a Lawyer for Help with Digital Asset Issues During a Divorce?
If you have any questions or concerns related to digital asset issues during a divorce, it is essential to consult with a divorce lawyer in your area. Your lawyer will help ensure you fully disclose all of your digital assets to ensure you avoid any type of legal consequences for inadvertent omission.
If you believe your spouse is hiding digital assets, your lawyer will be able to work with experts to investigate the issue and determine if hidden assets do exist. With LegalMatch, you can submit your concern and be matched with a family attorney near you in a short time and start the process of resolving your digital asset concerns.
