Divorces are stressful. Know what else is stressful? Having a judge hold that hard-earned crypto in his hands. Does he even know what crypto is?? Don’t worry. Wipe that sweat from your brow and sink back in your chair because we’re here to tell you how you can avoid all that unnecessary stress… a prenup of course! Whether you’re a Bitcoin billionaire or NFT newbie, a prenup is a great option to ensure your digital assets are protected.
Digital assets are definitively on the rise, especially among zoomers and millennials. If you’ve held onto that crypto for several years, chances are you’re holding onto a good chunk of change. All the more reason for extra protection. As you may (or may not) know, if you marry without a prenup, all your assets, potentially even those owned prior to the wedding day, are at risk of division and distribution upon divorce (i.e. splitting with your ex) if not properly and diligently safeguarded.
Getting a prenup allows you and your fiancé to declare certain assets – including digital assets – off limits should you ever get divorced. This process must be completed prior to your walk down the aisle. Making these decisions before a divorce pops up streamlines the process and eliminates much of the stress associated with divorce. That is especially the case with when it comes to the complicated subject of digital assets. You definitely don’t want to get caught trying to figure things out at the 11th hour! Give yourself the gift of peace of mind with a prenup.
What are digital assets?
Broadly speaking, digital (i.e. non-physical) assets are any electronically stored files of data including websites, videos, email, and other digital data files. What we are likely more interested in as we discuss prenups are digital assets that have monetary value. A few common examples include cryptocurrency and NFTs. In the world of prenups, digital assets such as crypto and NFTs – non-fungible tokens – typically fall under the category of “electronic property with monetary value.” As such, they can be listed on your financial schedule (as part of the generally required financial disclosure process) with a quantifiable value.
Crypto currency, a form of digital asset, is a digital currency that is exchanged through a computer network and is not reliant on any authority such as a bank or government. A very popular example of cryptocurrency is Bitcoin – the first cryptocurrency. Of course, now there are now multiple cryptocurrencies.
Now onto one of the newer kids on the block, the NFT. NFT stands for “non-fungible token”. Non-fungible essentially refers to the unique nature of each NFT. Compare this to cryptocurrency which is fungible. So essentially, an NFT is a non-fungible cryptocurrency. NFTs can come in many forms/mediums including digital art and music. You may have heard some pretty crazy stories about the multimillion-dollar works of ummmm… art? In fact, the highest-priced NFT was purchased for a staggering $91 million – “The Merge”. Wowzer!
Digital assets and divorce
With the rapid rise in popularity of digital assets, it’s no surprise that the law and divorce courts haven’t quite caught up. The courts often rely on expert witnesses in order to guide them in deciphering digital assets and how to go about dividing them. Digital assets can also potentially be hidden more easily than other more traditional forms of assets and property. Forensic experts may be required to uncover crypto and other digital assets which weren’t disclosed.
While the courts may still be somewhat unfamiliar with the intricacies of digital assets, they are generally treated the same as any other asset or property. That means, depending on the state you live in – an equitable distribution state or a community property state – the court will divide and distribute the marital property of the couple. In equitable distribution states, this means that the marital assets will be divided “equitably”. In a community property state, this generally means that marital assets will be split right down the middle.
If you don’t want your digital assets to be subject to your state’s divorce laws, a prenup is a great option. In lieu of state divorce laws, your assets will be governed by your mutually agreed upon prenuptial agreement. So essentially, you get to make the rules! This stretches beyond just determining who gets what in a divorce. Your prenup can create a plan for the management of digital assets both during and after the marriage. This can be important if you and your fiancé plan to own digital assets as part of your marital portfolio. If one of you is super into crypto and the other isn’t, the less interested partner may not know how to manage the crypto assets if they are distributed to them upon divorce. Additionally, if you own digital assets together, but one of you is way less crypto savvy, can you both make management decisions over the assets? Your prenup can create a plan as to who will manage the assets and what type of consultation and approval is required before certain management actions. A prenup, and the discussions that take place while drafting your prenup, are important to ensure that both partners are on the same page with the marital financial plan.
In case you’re wondering if you can get away with concealing some of those more obscure digital assets, think again. A prerequisite for a valid prenuptial agreement is financial disclosure of all of your property, assets, and liabilities. That means both you and your fiancé must inform each other of the state of your finances – warts and all. What happens if you don’t? Well, done the road, your spouse can challenge the validity of the prenup based on a lack of financial disclosure. If the court agrees, your entire prenup could be thrown out. If that happens, you are back at square one and subject to the divorce laws of your state. Even best case scenario, you are shelling out a good chunk of change on attorney’s fees and forensic financial expenses trying to defend the validity of your agreement. Take our word for it, it’s way better to just fully disclose your finances. HelloPrenup provides a convenient financial schedule to list all of your assets and liabilities that can be attached directly to your prenup. Easy peasy!
One last consideration, you should both fully discuss your financial schedules. Financial disclosure is a cornerstone of prenup validity. So, if one of you is less digital asset savvy, some extra explanation may be required. Don’t forget, even if you don’t have an attorney actually draft your prenup, you can always seek out legal advice if there are portions of the agreement that you don’t understand – like the division of digital assets, for example. Or, perhaps you would like to consult with a financial advisor to understand your partner’s digital assets. Both you and your fiancé should fully understand the prenuptial agreement and its implications. If you don’t, it could come back to bite you later. Not only can you challenge the validity of a prenup based on a lack of financial disclosure, but you can also potentially challenge the agreement based on a lack of understanding of the digital assets and financial investments.
When actually drafting your prenup, you may need to consider more than just the asset itself. What do we mean by this? Well, assets that grow in value during the marriage may require some special considerations. If you owned crypto prior to marriage, generally that asset would be considered your separate property and would not be subject to division upon divorce. However, if you hold onto that investment during the course of the marriage and it grows significantly in value, your spouse could be entitled to at least a portion of the increase in value of the investment. With a prenup, you can protect not only the original investment but also the increase in value over the years. This is especially important in the land of crypto and digital assets as a modest investment can balloon into a sizeable chunk of change.
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