What Digital Assets Count as Marital Property?
At a Glance
Complex property arrangements are an increasingly common feature in modern US divorces due to the inclusion of digital assets like cryptocurrencies, tokens, online businesses and more. With an expanding list of divorce assets, it's important to receive clarity regarding which digital properties are considered marital assets in divorce. The top-rated family law attorneys at Next Legal have valuable experience in determining digital assets and ensuring equitable division of property.
How Digital Assets Are Treated as Marital Property in California Divorce
Technology has fueled innovations in the financial sector, leading to a growing class of intangible assets that have no physical form yet hold substantial value. Known as digital assets, this new asset class is an increasingly crucial component of divorce, especially among high-net worth individuals or those with a diversified investment portfolio.
Divorce asset lists typically include homes, bank balances, real estate, and retirement accounts and are a key consideration in property division. However, this may not present an accurate picture as digital assets like cryptocurrencies, online business goodwill or intellectual property may represent a significant portion of an individual’s net worth.
As digital assets are easier to conceal due to their intangible nature, they can be underreported or result in incomplete disclosures. Failure to disclose digital assets can lead to penalties, impact property division and be treated as financial misconduct.
In this article, we attempt to answer which digital assets may be counted as marital assets in divorce and under what circumstances they become part of community property or separate property.
What Are Digital Assets in Modern Divorce Cases?
Digital assets sometimes lack a traditional paper trail and are difficult to find or trace, necessitating proper documentation, especially for privacy coins or keys for digital wallets. Accurate records can help with full disclosure during the discovery phase and ensure proper valuation and equitable division of marital property.
All assets acquired during the marriage fall under community property.
Any digital assets bought during this period or that have increased in value will need to be accurately identified, disclosed and valued during the divorce process. This could include online subscription-based businesses to NFTs, which are considered marital property in the US.
Here’s a list of digital property counted as marital assets in divorce, provided they were acquired during the marriage.
Digital Asset List
Privacy coins, tokens on centralized or decentralized exchanges
Cryptocurrencies like Bitcoin, Ethereum, etc.
Digital wallets
Online trading accounts
Non-fungible tokens (NFTs)
E-commerce stores or online businesses
SaaS platforms
Copyrights, trademarks, licenses
Digitally held stock options and RSUs
Databases with commercial value or proprietary data on cloud platforms
Monetized blogs, domain names, and YouTube channels
How US Courts Decide Whether a Digital Asset Is Marital or Separate Property
The primary consideration of whether a digital asset is marital or separate property under US law is determined by two factors. Namely, the source of funds used to purchase the digital asset and the date of acquisition. What happens to such assets in divorce is that those properties acquired before marriage remain separate property due to their date of acquisition.
However, if they’ve increased in value due to combined marital efforts or because of a couple’s high profile, they become marital or community property. Another instance the asset becomes community property is if a digital asset was purchased using earned marital income. Under California law, this is subject to a 50/50 division, based on the source of funds.
It’s also important to keep in mind that the onus of proving that an asset is separate property lies on the owner, who has to trace the asset to a separate source. For clients looking to change the nature of their digital asset from community to separate or vice versa, California law requires it in writing to ensure enforceability.
How Digital Assets Are Valued and Divided During Divorce
The discovery process is critical when it comes to a divorce that involves complex property arrangements, including digital assets, as they require the services of professional financial experts. Forensic accountants and valuation specialists play an important role in tracing, identifying and valuing assets, which helps in accurately determining ownership, market value and acquisition timelines.
For instance, divorce asset lists that contain cryptocurrencies require a precise legal strategy as they’re volatile in nature, given their significant price swings. These are typically valued at the date of their distribution or trial based on specific state laws.
In California, courts have discretion to determine valuation dates if market fluctuations could impact the equitable distribution of marital assets. Expert valuation and full disclosure, therefore, play a critical role in the valuation of digital assets during divorce.
Choose Next Legal, Silicon Valley’s Top-Rated Family Law Attorneys
Looking for a trustworthy family law attorney who can manage a list of complex divorce assets while offering you support and legal expertise backed by experience? Whether you need comprehensive support for divorce and child custody, mediation, restraining orders, spousal support or property division, we’ve got you covered.
As top-rated family law attorneys, we’ve been providing expertise, acting as partners and advisors to ensure discreet, fair and equitable outcomes. We employ time-tested settlement strategies to achieve early resolution in contentious family law disputes and assure you of exceptional client service.
We’re based in three locations, namely Palo Alto, Pleasanton and Walnut Creek. Call us or fill in our form to book a legal consultation today.