A recent development in technology and investment has seen the rise of so-called ‘digital assets’, such as Non-Fungible Tokens (NFT’s) and Cryptocurrencies. These are complex assets which utilise blockchain technology and are becoming increasingly popular assets to trade and sell, sometimes for a significant value.

As technology advances, ownership of these assets may become increasingly common for the general public. This blog seeks to explain some of the common jargon surrounding these digital assets and consider how a court is likely to deal with these assets upon separation.

 

What is the ‘blockchain’?

To understand these digital assets, it is important to know how and where ownership is recorded. Blockchain technology allows information to be recorded and distributed but not easily edited. A simplified explanation of blockchain technology is that it is a public ‘ledger’ where data transactions are recorded and stored in blocks that link together to form a chain of bookkeeping, hence the term “blockchain”. These records would be nearly impossible to alter, delete, or destroy.

 

What are ‘Cryptocurrencies’?

As the name may suggest, cryptocurrencies are a form of digital currency which use blockchain and are encrypted such that only the owner can decrypt it whilst remaining anonymous. Most people would have heard of the more well-known cryptocurrencies such as Bitcoin and Ethereum, but there are estimated to be thousands of different cryptocurrencies in existence. Anyone can buy and sell cryptocurrencies and their value may fluctuate significantly based on various factors such as; supply and demand, government regulations, and media hype. For context, when first released, Bitcoin was sold for around $0.09 each. However, at its peak in 2021, it was worth approximately $64,000.00 each. These can therefore be significant assets and potentially amass a huge value.

 

What are ‘Non-Fungible Tokens’ (NFTs)?

Like cryptocurrencies, NFTs are a digital asset which can be sold and traded but they are much more unique in nature. Cryptocurrencies, such as Bitcoin for example, are fungible. This means that one Bitcoin does not have a different value to another Bitcoin. This is the same with typical currency, where a £5.00 note is generally interchangeable with another £5.00 note.

Conversely, NFTs have a unique digital fingerprint with an immutable record of originality and authenticity.  One way to understand this is to consider a famous painting, the Mona Lisa for example. Even though the painting can be reproduced as a copy, photographed, scanned etc. there is still only one original and you would not trade the original Mona Lisa for a photograph of the same.

NFT’s are similar to this concept but stored digitally using blockchain technology and they can be purchased using various cryptocurrencies. Generally, NFTs are only worth what people are willing to pay for them but because of their uniqueness, they can often be worth significant sums. For example, the most expensive NFT sold was in March 2021 for an enormous $69.3 Million.

 

How would the court deal with these assets upon separation?

When a marriage or civil partnership breaks down consideration will need to be given as to a fair way to divide assets. Cryptocurrencies and NFTs are increasingly prevalent and may have significant value which should not be ignored upon divorce.

 

How will these digital assets be valued?

Spouses getting divorced will need to provide full and frank disclosure of their financial circumstances such as capital (including digital assets), liabilities, and income.

Currently, there is very little precedent on how to deal with digital assets of this nature and each case will vary depending on numerous factors. It is likely that an expert would need to be instructed to assess the value of those digital assets, particularly as their value can be extremely volatile and can change drastically in the space of a few hours.

 

How will these digital assets be divided?

Although it may be difficult to value digital assets, these, once valued, would be treated like any other asset by the Family Court, which has the power to order a sale of the asset(s) and division of proceeds, a transfer of the asset(s), or a lump sum payment of other asset(s) in the “matrimonial pot” of an equivalent value.

Expert legal advice should be sought as soon as practicable upon separation. Individuals should also consider obtaining legal advice before marriage as a pre-nuptial agreement prior to marriage may be advisable in an attempt to determine what should happen to intended spouses’ assets, income and liabilities in the event of a possible divorce in the future.

 

If you would like advice about Divorce or Financial remedies, please contact our Family Team at 01206 700113 or contact us