According to the Pew Research Center, about 17% of all American adults have invested in cryptocurrencies. A cryptocurrency is just one example of a digital asset, which the International Capital Market Association defines as a “digital instrument” that uses ledger technology (not including digital fiat currencies). Some define digital assets in broader terms, and spouses might encounter this concept for the first time during a divorce in South Carolina. Modern couples are more likely to hold digital assets in divorce than ever before, and they are securing digital assets with various strategies. Spouses who wish to explore these strategies in more detail can speak with experienced divorce lawyers in South Carolina. Contact the experienced South Carolina divorce attorneys at King Law Offices at (888) 748-KING to learn more about how to secure your digital assets in a divorce.
What Are Digital Assets?
There are different ways to define digital assets. Many define digital assets as tokens that exist on a blockchain. These might include cryptocurrencies such as Bitcoin or Ethereum. Although these two mainstream tokens are particularly popular, there are many other “altcoins” such as Solana, Avalanche, and Ripple. So-called “meme coins” are also gaining traction, including PEPE and Dogecoin. Although they made an impact when first introduced, most non-fungible tokens (NFTs) have dropped in value to a significant degree.
Some define digital assets in broader terms. This broader definition may encompass digital assets such as iTunes libraries, downloaded video games, Facebook photos, saved messages, passwords, Instagram reels, and more. Some even count a Netflix subscription as a “digital asset.”
Cryptocurrency Represents a Popular Way to Conceal Assets
In previous decades, spouses employed various strategies when attempting to conceal assets. Faced with handing over half of their wealth to their exes, these individuals used offshore accounts, precious metals, loans, and gifts to conceal or protect the bulk of their fortune. Today, the rise of blockchain technology arguably makes this process simpler than ever before. This technology offers a curious mix of transparency and anonymity. Although the blockchain is accessible to everyone, the owner of specific tokens is impossible to determine unless the viewer knows the identity of the wallet holder. A wallet ID is just a string of numbers, and only the user knows their private keys.
In theory, this allows spouses to transfer assets to a private wallet in a completely untraceable manner. These transfers may occur over the course of many years, and spouses may have no idea how much wealth their exes hold in crypto wallets. The appreciation of crypto tokens is another important factor, and the price of Bitcoin has skyrocketed by approximately 18,000% since the first tokens were minted. A spouse who purchased a relatively small amount of Bitcoin in 2015 could be worth millions today, and their ex may have no idea about the tokens hidden on a seemingly innocuous thumb drive.
How to Trace Digital Assets in Divorce
There is now an industry dedicated to tracing crypto tokens, and spouses often utilize these services when attempting to secure digital assets in divorce. Crypto tracing is a type of forensic accounting, and forensic accountants have been assisting divorcing spouses since long before Bitcoin first emerged. While forensic accountants have been forced to develop new skills to address blockchain-related issues, many of the same basic principles apply.
If a spouse made an initial crypto purchase during the marriage, they assumedly transferred money into a crypto exchange. The most obvious way to send money to an exchange is from a normal bank account, and this transaction creates a “paper trail.” Often, spouses make these transfers from joint accounts. Even if they made the initial transfer from a secret bank account, these records could be subject to disclosure during discovery. During the pre-trial discovery phase, spouses can request documentation that might be relevant to the divorce – including banking records. Forensic accountants can start with the initial transfer before following the trail to a crypto exchange – and beyond. Speak with our legal team at King Law Offices for more information on forensic accounting during divorces in South Carolina.
How to Divide Crypto During a Divorce
In many cases, spouses will not attempt to conceal digital assets in divorce. If a spouse readily discloses the existence of these assets, the next step is to decide how to handle them. The obvious option is to sell the tokens and split the cash proceeds. If a crypto investor wishes to continue investing, they can simply buy back their tokens with their 50% share.
However, the crypto market is notoriously volatile. A spouse may not wish to sell their tokens – instead adhering to the popular strategy of “HODL” (hold on for dear life). If a South Carolina divorce occurs when crypto tokens have declined in value, spouses may wish to hold them until the market recovers. In this situation, spouses have two options:
- Co-Own the Tokens After Divorce: The first option is for both spouses to co-own the tokens until the market recovers. If spouses choose this route, they must create a highly specific agreement – perhaps during mediation or collaborative law. This agreement should essentially take the form of a “limit order,” specifying exactly when spouses should liquidate the tokens. For example, spouses might agree to sell their Bitcoin only when the value of a single Bitcoin reaches $100,000.
- Buyouts: A more straightforward option is for one spouse to buy out the other. For example, spouses might own $300,000 of Ethereum. One spouse might offer their ex 150,000 American dollars in exchange for sole ownership of the Ethereum wallet. With this strategy, there is no need to sell the Ethereum – and the spouse who owns the wallet can potentially wait for a more opportune time to sell.
How to Obtain Other Types of Digital Assets in a Divorce
Other types of digital assets also exist that can be meaningful to one or both parties in a divorce. The first step is to start by identifying all digital assets owned by either spouse. This may include some of the following:
- Online Accounts: Social media accounts, email accounts, and domain names.
- Digital Content: Photos, videos, e-books, music, and other digital files.
- Subscriptions: Cloud storage, streaming services, and software subscriptions.
- Intellectual Property: Blogs, websites, patents, trademarks, and copyrights.
After you determine the digital assets, it is important to determine ownership and value. First, establish who owns each asset or if they are jointly owned, then assess the current value of digital assets. In certain cases, you may need to engage experts, such as forensic accountants, to accurately value complex digital assets.
It is important to keep detailed records of all digital assets, their valuation, and how they were divided. By carefully identifying, valuing, and legally documenting the division of digital assets, both parties can protect their interests and ensure a fair distribution during a divorce.
Contact the Experienced South Carolina Divorce Attorneys at King Law Offices Today
Digital assets in divorce can raise all kinds of challenges, but they may also present various opportunities. The divorce lawyers at King Law Offices may be able to help spouses dealing with complex assets – including cryptocurrencies and non-fungible tokens, as well as other important digital assets of a spouse in a divorce. Contact our dedicated legal team at King Law Offices today at (888) 748-KING to continue this discussion.