Discovery, Valuation, and Distribution of Digital Assets in Divorce

If you are divorcing, you may be concerned about identifying and splitting physical assets such as vehicles, furniture, collections, and the marital home. However, you should not overlook digital assets.

A digital asset is any item that exists in a digital format and has value, whether monetary or sentimental. Some examples include:

• Media files: Photos, videos, audio files, music, and other multimedia content.
• Documents and files: Word processing documents, spreadsheets, presentations, PDFs, and other text-based files.
• Online accounts: Email accounts, social media accounts, online banking accounts, and other accounts that store data or provide access to services.
• Cryptocurrencies: Digital currencies like Bitcoin, Ethereum, and others that exist on blockchain technology.
• Non-fungible tokens (NFTs): Unique digital assets that represent ownership of items like artwork, collectibles, or virtual real estate.

These assets are stored electronically on devices or networks. Digital assets can be transferred or traded electronically, which means they can be split in a divorce.

However, dealing with digital assets in a divorce can be time-consuming, since they can be difficult to uncover. Here is what you need to know about discovery, valuation, and distribution of digital assets in divorce.

Discovery

Divorces often involve hidden assets, and many people have gone to great lengths to hide their valuables from their soon-to-be ex. Examples include converting money to Bitcoin and hoping it never gets found, or holding funds online in apps that allow the accrual of cash accounts, such as gaming, betting, and cash transfer apps.

Although crypto has been a common trend in divorces in the past five years, it is still quite elusive. It is much more difficult to trace compared to more traditional forms of wealth.

Often, the other party does not even know it exists, making discovery a critical step in the divorce process.

Attorneys may work with forensic experts to trace crypto transactions, recover deleted files, or examine financial records for signs of unreported income. They may examine:

• Bank and credit card statements for crypto exchange transactions
• Email accounts and mobile apps for digital wallet activity
• PayPal, Venmo, Stripe, or business payment platforms
• Betting and online gaming platforms
• Tax returns, particularly IRS Form 8949 or Schedule D for crypto sales

Valuation

Digital asset valuation must be accurate and current, especially due to fluctuating markets and intangible factors. Crypto may need to be converted to cash. Business valuation experts may be needed to appraise digital assets. Some, like NFTs, depend on market demand. Most digital assets are not pegged to a regulated currency and their values are inherently volatile and subject to scamming, leaving the investor at great risk of devaluation or loss. These losses should be documented so that they can be accounted for in the divorce.

Distribution

Once identified and valued, digital assets must be divided according to equitable distribution laws. A judge distributing these assets between divorcing parties may do so in a variety of ways, depending upon how the assets are titled and how and when they accrued:

• In-kind distribution: Each spouse receives a share.
• Offset: One spouse keeps the digital asset, and the other receives an equivalent value in cash or property.
• Buyout: One spouse buys out the other’s share.
• Liquidation: The asset is sold and the proceeds are divided

Contact Us Today

Many people overlook digital assets in a divorce, but they can be just as important as physical assets. Bitcoin and other digital currencies, tokens, and assets can amount to tens or even hundreds of thousands of dollars of assets or losses and may be subject to equitable distribution under Virginia law.

If your divorce includes complex assets, the Virginia divorce lawyers at Culin, Sharp, Autry & Day PLC can assist you. We understand the challenges you face in your divorce case and are committed to skillfully guiding you through the process toward an optimal outcome while protecting your legal rights. Contact us via (703) 934-2940 or online here to schedule a consultation.