Crypto Assets Are Making Divorce More Complicated

Inspecting a spouse’s computer to ferret out hidden crypto accounts is only one thorny aspect of disputes over digital assets in divorce cases.

Indeed, the overarching challenge is valuing these high-tech assets so they can be divided by court order.

“I have one extremely wealthy client who wrote his private wallet address on a piece of paper; but he can’t find it. He said, ‘I had $20,000.’ Now he doesn’t know what it’s worth. It could be $80,000!” martial and family law attorney Yueh-Mei Kim Nutter, a partner in the Florida firm Brinkley Morgan, tells ThinkAdvisor in an interview.

Financial advisors can play an important role even before the divorce process starts by gathering information and documents about crypto holdings.

Then they can help, for sure, by providing input into the valuation of those assets, Nutter says.

Valuing the couple’s crypto assets is difficult, especially when it comes to non-fungible tokens, which can be highly complex and esoteric.

In the interview, Nutter discusses one of her current cases in which the husband bought, as a hobby, about 2,000 website domain names that aren’t in the market.

How to value each of them presents a significant problem, she says.

Digital assets comprise cryptocurrency, real estate, e-books, art works, documents and, because crypto is growing in popularity, much, much more.

Divorce law varies from state to state, of course. But Nutter argues that, in general, the law “isn’t keeping up with the times” as to the issue of dividing digital assets in divorce.

A Fellow of the American Academy of Matrimonial Lawyers, Nutter is a certified family mediator and founding member of the Collaborative Family Lawyers of South Florida.

Since 2011, she has been on U.S. News & World Report’s list of the Best Lawyers in America.

ThinkAdvisor recently interviewed the attorney, who was speaking from her office in Fort Lauderdale.

She sees disputes over digital assets in divorce cases to continue on the rise. “The high-end divorces of the next generation are going to have a lot more digital assets [to divide],” she says.

Here are highlights of our interview:

THINKADVISOR: Are disputes over digital assets in divorce cases increasing?

KIM NUTTER: I’ve been seeing that over the past couple of years. I think this is going to be absolutely growing, particularly because the next generation is very much into digital assets.

Many wealthy people own digital assets. So the high-end divorces of the next generation are going to have a lot more digital assets [to divide].

And now Fidelity is letting you put digital currency into your retirement account. So I don’t think [digital assets are] going away.

Crypto will get bigger and bigger.

What’s the crux of the issue about digital assets in divorce?

A lot of it is finding these assets, but the real challenge is the evaluation.

I have a case right now in which my benefit is that I have the client who has all the digital assets and is quite knowledgeable about them.

However, when I go to court to present evidence as to the assets, I need an independent expert, not the client, to testify about the valuation.

It would be a little self-serving and wouldn’t go over well if the client [presented that]. It’s not the kind of credibility that you want.

How do you rate the courts when it comes to divorce cases involving digital assets?

The problem is that the law hasn’t caught up with society. In a divorce, you have to ascertain what all the marital assets and liabilities are so you can value them as of a certain date and then try to divide them.

My job as an attorney is to offer the court a reasonable way to do that.

But divorce law isn’t keeping up with the times; it’s lagging behind. 

What are the main challenges in valuing digital assets?

I’ve found that [typically] one [spouse] is far more knowledgeable about the [couple’s] assets than the other, particularly digital assets.

Even though the lesser-knowledgeable spouse may be aware that they have an NFT [non-fungible token], for instance, they have no idea how to find the information about it [to value it].

And the concept of a [crypto] public wallet and a private wallet is — you might as well be speaking Martian to them. So that’s a problem.

I have an extremely wealthy client who wrote his private wallet address on a piece of paper; but he can’t find it.

He said, “I had $20,000.” Now he doesn’t know what it’s worth. It could be $80,000!

How can financial advisors be of help when digital assets need to be divided in a divorce?

This will sound a little unusual, but maybe the evaluation of digital assets is one of those situations where the spouses should work together since there are so many unknowns.

So with a collaborative divorce, maybe financial advisors need to come into the process. Otherwise, you could hire two digital asset experts who could say the assets are worth divergent amounts.

There might be a way that a financial advisor could help the [parties] not to waste all that time and money.  

Advisors need to understand how to find digital assets and then how they’re going to be valued. They could give some direction ahead of time.

How far ahead?