Digital assets have quickly become more common in society as technology advances, especially among millennials. Thus, dividing these assets is increasingly common in a California divorce.
One of the reasons is that dividing digital assets is still a relatively new issue, and there are not many prior cases to guide the courts. Still, California family court judges will generally use the same rules for dividing digital assets as they would with a traditional property.
Now, in this new age of advanced digital technology, digital assets are generally included in the spouse's community (marital) property. If you or your spouse own digital assets, such as cryptocurrency or non-fungible tokens (NFT), you need to understand how California law will divide them in a divorce.
When spouses share digital assets, they are considered the same as physical assets and subjected to the same laws for division. However, this dividing of assets can be difficult to arrange because the divorcing spouses share a lot of digital assets.
If one spouse doesn't want to share digital assets, they have the option of buying out the other spouse's rights if they can reach a mutual agreement.
This is usually arranged by one spouse offering to exchange assets of equal value, but the judge will typically want to ensure these assets are an equitable trade. Our California family law lawyers will review this topic in more detail below.
What Are Digital Assets?
Digital assets are described as anything owned or stored in digital form. Digital assets are considered marital property if they were acquired during the marriage, and they include a broad range of property, such as:
- Kindle downloaded books,
- iPad downloaded movies,
- iTunes downloaded music,
- High-value digital files,
- Internet businesses,
- Websites and domain names,
- Intellectual property,
- Video games,
- Online consumer rewards,
- Gift cards,
- Airline miles,
- Digital artwork,
- Data storage accounts
Digital documents like tax returns and financial statements are typically stored electronically. These are crucial for dividing investments to establish the cost for calculating gains and other potential tax consequences.
Depending on the exact type and amount of your digital assets, they could be worth a considerable amount, and some of them are unique and irreplaceable.
Under California law, you are required to disclose all your digital assets during your divorce proceedings. If you intentionally conceal them, then you could face harsh penalties.
What Does California Law Say About Dividing Digital Assets?
In a divorce, spouses must divide their property according to California state law. This means both spouses must disclose all their property, assets, and debts, then place them into the community or separate property category.
Put simply; community property is any property acquired during the marriage. Separate property is any property the spouses owned before marriage. Since California is a community property state, the family courts will divide marital property in half, a 50/50 split.
Regardless of which spouse brought the asset into the marriage, it will be split right down the middle, which includes digital assets. While this sounds pretty simple on the surface, this property division process can become complicated quickly as digital assets are challenging to divide fairly.
Spouses must decide how they want to divide their community property, including digital assets, before they take the issue to a family courtroom. Reaching a mutual settlement agreement with your spouse is almost always the best option, as it allows you to have some control over how your digital assets are divided. Otherwise, you will be forced to go to trial.
Many digital assets are easy to copy and share at no cost by using a thumb drive or the Cloud. This means spouses can easily exchange many forms of digital assets so that one spouse having ownership is not an issue to be settled in divorce.
In other words, if you and your spouse can remain civil and friendly toward each other in an uncontested divorce, you might not have to hand over a large portion of your digital assets, but there are exceptions, such as Bitcoin.
What About Bitcoin?
If you or your spouse own Bitcoin or another type of cryptocurrency, it has to be valued for marital property division. However, placing a value for Bitcoin for a divorce settlement agreement can be a complex process.
You might need the services of a cryptocurrency expert or a family law lawyer with experience dealing with digital currencies. The primary issue is the fluctuating value of cryptocurrencies based on the current market.
One of the potential solutions is to include a volatility formula in the divorce settlement, which covers any changes in the value of your cryptocurrencies and will automatically make appropriate adjustments in how other assets are divided in the divorce.
What About Disclosure and Hidden Assets?
As discussed above, disclosure is the first step in dividing property in a California divorce. Both spouses are legally obligated to document all their assets and liabilities to determine what is separate and community property.
You won't be surprised to learn that it's common for a spouse to try to conceal some of their assets to avoid having to divide them. The family courts have seen almost all the tricks. Tracking down hidden digital assets is typically challenging.
Perhaps they will attempt to place some money in a separate bank account without their spouse knowing about it. Maybe you will need the services of a private investigator to track down hidden accounts and assets to ensure fair and equitable distribution of digital assets in a divorce.
There are reports of rising cases where spouses attempt to conceal their assets using cryptocurrency. Some spouses have reported they became suspicious after their saw some signs of unexplained wealth and prosperity.
How Can a California Divorce Law Professional Help You?
If your divorce involves digital assets, you must contact a lawyer with experience in complex property division. As discussed, digital assets are frequently challenging to trace and value.
If you have remained civil and friendly with your soon-to-be-ex-spouse, you can work out a mutual agreement for sharing digital assets before the divorce proceedings.
It would be wise to download the necessary files before the divorce begins. Getting a divorce is often a difficult emotional roller coaster, and dividing assets may not be at the top of your priority list at the moment.
However, your future financial stability could be at stake, and one of the most effective strategies for dividing assets and property in a divorce is planning. At Furman & Zavatsky, our California family law lawyers can help you handle digital assets and cryptocurrencies in a divorce.
We can assist you and your spouse by working together civilly to reach a compromise. If a settlement agreement is impossible, we can take the case to the next step through negotiation and even go to a trial if necessary. You can contact our law firm for a free case evaluation by phone or fill out the contact form.