Protecting Your Rights & Advocating For Your Interests
One of the most complicated parts of any divorce is the division of marital assets. Part of what makes this process so complex is emotional. Spouses have often invested years of effort in building a life, and have developed attachments to many parts of it. However, another aspect that makes it complicated is actually identifying all marital assets and the classification of marital assets. The increased popularity of digital assets and cryptocurrency has made this process even more difficult. While most couples will have no trouble remembering to consider the division of shared homes, vehicles, banking, and retirement accounts, NFTs and cryptocurrency may not even come to mind even though they can be a considerable part of your net worth.
What are NFTs?
NFT stands for non-fungible token. These tokens are digital assets that often represent real-world objects. For instance, you may purchase an NFT of a digital Birkin bag, or a work of art. You can also purchase NFTs of popular memes. In that case, although the meme has been distributed thousands or even millions of times, you are purchasing the original digital file. Because of the blockchain technology attached to NFTs, this also enables you to have a digital record of everyone who has ever shared or viewed the meme. The value of NFTs can vary greatly. Some NFTs can become highly collectible and skyrocket in value only to plummet days or weeks later. However, with great risk comes great reward, and many people have built NFT collections that are worth millions of dollars.
Classifying NFTs as Marital Property in Colorado
Colorado is an equitable distribution state. This means that instead of an automatic 50-50 property division, all marital property will be allocated based on what’s deemed to be fair. This determination can be based on a variety of factors, such as the sacrifices each spouse has made for the marriage and how each spouse has contributed to the accumulation of assets. For instance, if one spouse was a homemaker throughout the marriage and cared for the household and children while the other spouse acted as the breadwinner, the homemaker spouse may be considered to have made an equal contribution to accumulation of assets.
So how are marital assets determined? Marital assets are generally any assets accumulated during the course of the marriage, including any income earned by either spouse while married. Some things, such as inheritances or gifts made to either spouse by third parties, may not qualify as a marital asset. For this reason, NFTs purchased by either spouse during the marriage may be classified as marital property and subject to equitable distribution. However, if the NFTs were gifted to either spouse by a third-party, or were inherited, they are not likely to be classified as marital property; however, to the extent the NFTs have increased in value, the increase may be considered marital property.
How to Value NFTs
NFTs can be difficult to value accurately because their valuations tend to fluctuate somewhat wildly. There are also many factors that must be considered in determining their value. For instance, some NFTs include income streams and other financial benefits. For this reason, the method of division is important, and selling NFTs may not be in the best interest of the parties.
How to Divide NFTs in a Divorce
Just like any other asset, it’s best for the spouses to come to an agreement as to how to allocate NFTs in a divorce. It is possible to agree to split ownership of the collection, with one spouse transferring some of the NFTs into the possession of the other spouse. Another option is to get the NFTs professionally valued, which would allow the spouse in possession of the NFTs to pay or provide assets of equivalent value to the other spouse in order to reach an equitable exchange. However, if this option is chosen, it’s important to remember that NFTs are unlike other assets and therefore a dollar for dollar trade may not be equitable. Spouses may also agree to liquidate the NFT collection and split the assets according to whatever division has been determined to be equitable. If this is the case, due to the volatile nature of the value of NFTs, it is important to be very careful about when to sell the NFTs. The spouses can agree to wait for a certain period of time before selling the NFTs and dividing the proceeds to maximize the value and income received. It’s also important to note that if the parties have an enforceable prenuptial or postnuptial agreement, assets will be allocated per the enforceable agreement.
Talk to a Divorce Attorney Who Understands NFTs
If you are getting divorced in Colorado, you need a lawyer who knows how to ensure that all marital assets you are entitled to a share of are accounted for, so that you get the best divorce settlement possible. Contact the experienced Denver divorce attorneys at Halligan LLC at 720-608-2361 to schedule a confidential consultation.