Protection Of Digital Assets In Your Divorce

May 20, 2022

Protection Of Digital Assets

“Digital assets” is an umbrella term that refers to a variety of electronic properties, from sentimentally valuable items like family photos to major financial assets like cryptocurrency holdings or a non-fungible token (NFT). During the divorce process, digital assets are evaluated in the same way as non-digital ones, and may be classified as either separate or marital property and subject to division between the spouses. Individuals who are going through a divorce should consider how they can protect all types of assets that are subject to division. You can learn more about how to protect digital assets in your divorce and other divorce matters by contacting the team of experienced Iowa divorce lawyers at Johnson Law Group by Phone (720) 463-4333 or Text-to-Chat (720) 730-4558.

How Are Digital Assets Divided?

Colorado follows a principle called “equitable distribution” when deciding how to divide assets during a divorce. According to this principle, assets will be classified as either marital or separate property, and the marital property will be subject to division. It must be divided in a way that the court deems equitable, which means that it will not necessarily be completely equal. The divorce court will consider several factors when deciding how marital property will be divided.

Digital assets are also subject to this process, but dividing the assets is often significantly more complicated than it is for more traditional assets, such as bank accounts and real estate. Dividing family photos will be relatively straightforward, but the division of cryptocurrencies, NFTs, and other emerging types of digital assets involves a unique set of complex factors. However, the bottom line is that digital assets of monetary value will be subject to the equitable distribution process in Iowa

What Types of Digital Assets Are Subject to Property Division?

Any digital asset with a financial value may be evaluated during the asset division portion of a divorce. This may include assets like:

  • Digital purchases, such as music, movies, TV series, video games, etc.;
  • Cryptocurrencies and NFTs;
  • Web domains for profitable websites;
  • Income-generating digital properties, such as online businesses and social media profiles;
  • and any other digital property with a monetary value.

Generally, divorce courts will most likely be more concerned with divided high-value digital assets and those that generate income. The transfer of other types of assets is often more straightforward, but there is the potential for contention over digital media that both spouses would like to own after the divorce. If you have concerns about the division of digital assets in your divorce, you can learn more about your options from one of the experienced Colorado divorce lawyers at Johnson Law Group.

Assessing the Value of Digital Assets in a Divorce

Assessing the value of traditional digital assets, such as digital media, is often pretty straightforward. However, cryptocurrencies and NFTs both fluctuate in value fairly regularly and are considered relatively volatile assets. For instance, in September 2020, the price of one Bitcoin was $10,764. Three months later, in January 2021, the price had surged to over $34,000.

Because divorce proceedings can often take several months, the value of the cryptocurrency-owning spouse’s holding could change significantly after an initial value has been assessed to them. Of course, the volatile nature of these assets means that the assets could also tank in value just as quickly - such as when the price of one Bitcoin plummeted from over $58,000 to around $35,000 between March and May of 2021. Divorcing spouses can account for this volatility by adding a clause to the divorce contract - such as a condition that states that if the value changes by a certain percentage, the division of other assets could change.

Tax Implications of Digital Asset Division

If a divorce court rules to divide cryptocurrency holdings, there could be major tax implications for the owner of the crypto account. In this situation, the court may order the crypto-owning spouse to sell their holdings and convert them to cash for the division process. If the spouse who owns the currency made a purchase several years ago and that investment has grown significantly since then, these funds will be subject to long-term capital gains taxes upon sale, as outlined by the Internal Revenue Service.

Additionally, if one spouse failed to report cryptocurrency games to the IRS, the other spouse could potentially run into future complications with the IRS if the couple filed joint taxes. This type of liability can potentially be avoided by asking the crypto-holding spouse to sign an affidavit indicating that they had no unreported income.

How to Protect Digital Assets in a Divorce

Ideally, digital assets should be included in a prenuptial or postnuptial agreement to offer the strongest protection during a potential divorce. However, those who did not create one of those documents may still be able to protect their digital assets. An experienced divorce attorney can represent the crypto owner during divorce proceedings and attempt to include a divorce settlement clause that allows the original owner to maintain control of the accounts.

Both spouses are legally required to reveal all assets during the divorce process. While digital assets are often more difficult to discover than other types of assets, those going through a divorce should always follow the law and disclose all of their assets, including digital ones.

Contact Our Colorado Divorce Lawyers For More Information

The financial aspects of the divorce process are often complicated and contentious. Spouses often disagree on what constitutes marital versus separate property, and how the marital property should be equitably distributed. The complex legal nature of these proceedings leads many divorcing spouses to seek legal guidance from an experienced divorce lawyer in their state. An attorney who understands how the divorce process works can represent their client through each step of the process, including settlement negotiations regarding the distribution of assets.

The Colorado divorce lawyers of Johnson Law Group have experience in local divorce cases. We understand how the process works in this state and how to provide our clients with a strong legal strategy for navigating their divorce proceedings. Additionally, we understand the importance of accounting for digital assets due to the recent phenomenon of cryptocurrency, NFTs, and other valuable digital properties. Call the Johnson Law Group today at (720) 463-4333 or Text-to-Chat (720) 730-4558 to learn more about the division of digital assets in your divorce.

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Written by Family Law Attorney Myles S. Johnson
Divorce doesn’t have to be dramatic. For the litigants, losing your spouse is significant enough. But you can choose the way it affects your daily life. The only guarantee I can give is that the feeling that you have right now will not be the feeling you end with. This is a season in your life, and it must be approached that way.
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