Crypto in a Divorce: How Connecticut Courts Handle Digital Assets

When considering the property division during your Connecticut divorce, you likely think of the big items first, like your home, retirement assets, vehicles, and possibly business interests. But if you or your spouse has invested in cryptocurrency or other digital assets, they can play a bigger role than you think. Here’s how Connecticut courts treat electronic assets in divorce.

Can a Connecticut Family Court Divide Electronic Assets?

In a Connecticut divorce, the family court has the authority to divide up all the parties’ assets through equitable distribution. Because Connecticut is an “all-property” state, this includes anything either party owns, no matter when or how it was acquired. Even assets held in only one party’s name can be divided during divorce. That includes electronic assets like cryptocurrency, NFTs, and even the family’s digital photo album. A digital asset is anything that exists purely in an electronic or online format that one or both spouses have a legal right to use. As more couples embrace a digital lifestyle, these electronic assets will become more important to reaching a fair and equitable division during divorce.

Types of Electronic Assets to Be Divided in Divorce

Increasingly, divorcing couples’ marital properties include more than just physical objects that can be seen and touched. Whether you realize it or not, you probably own some electronic assets that will need to be addressed during your separation and divorce from your spouse. Some types of digital assets are very common but often overlooked. Others are still emerging, and may need to be explained to the Court. Your property includes:

• Cryptocurrency wallets like Bitcoin, Ethereum, or Dogecoin – These digital currencies are not tied to a bank. Instead, ownership and value of these digital assets are tracked through decentralized blockchain technology, tracked within applications on cellphones and servers.
• Non-fungible tokens (NFTs) - This digital artwork or intellectual property can have substantial real-world value.
• Online businesses - If one spouse maintains an online shop (such as on eBay or Etsy) or sells digital assets online, the entire business can exist solely in digital spaces.
• Digital financial accounts – A Judgment of Divorce needs to account for funds held in apps like Venmo, PayPal, CashApp, ApplePay, or even Starbucks.
• Licenses to digital media – From streaming service accounts to social media, to video games, increasingly people own licenses to digital media that cannot easily be shared or divided after divorce.
• Frequent flyer miles, loyalty reward points, and digital credits – Often attached to credit cards, or associated with specific companies like airlines, hotels, or casinos, these digital assets have a redemption value that is often overlooked.
• Digital memories – Family photos, home videos, and even selfies can have enormous sentimental value.

Issues in Dividing Cryptocurrency Like Bitcoin in Divorce

Connecticut divorce courts have been dividing parties’ assets as long as they have existed. They have a variety of tools and methods they can use to reach a fair outcome. But cryptocurrency and other digital assets present some unique challenges not common with traditional assets.

Discovering Concealed Electronic Assets

One of the biggest challenges to dividing electronic assets in divorce is finding them in the first place. It is very common for each spouse to have digital assets, including video game licenses or cash accounts that the other spouse does not even know about, let alone have access to. You may be able to track down digital assets by taking a close look at family bank accounts or credit card statements for payments. However, many types of cryptocurrency are designed to be anonymous, and that can make it hard to identify. If you believe your spouse has substantial digital assets, talk to your Connecticut divorce attorney about strategies to identify these assets through discovery, subpoenas, and depositions.

Valuation of Fluctuating Cryptocurrency

Another big challenge, especially for cryptocurrencies like Bitcoin and NFTs, is establishing the fair market value of the digital assets at the time of divorce. The value of cryptocurrency can swing wildly, sometimes changing by the hour. NFTs are only as valuable as the market says they are. And digital businesses are often difficult to place a valuation on, since their inventories and expenses are intangible. You may need to hire an expert to demonstrate the dollar value of the crypto assets in your marital estate.

Methods for Dividing Digital Property

With tangible assets, property division is generally about physical possession and the payment of equitable interests. For example, one spouse may be awarded the marital home and ordered to pay the other spouse half its net value. But with digital assets, choosing the right method for property division can be more challenging. In negotiating a division of cyber-property, consider:

• Duplication and exchange of (non-copyrighted) digital media like photos
• Transferring shares of cryptocurrency into a new crypto wallet in the other spouse’s name
• Offsetting the value of the digital assets with other property
• Selling the asset and dividing the proceeds (remember that this can have capital gains and tax consequences)
• Assignment of licenses
• Cancellation of digital subscriptions

Get Help Accounting for Digital Assets in Your Connecticut Divorce

The Connecticut divorce attorneys at Lawrence & Jurkiewicz, LLC represent divorcing spouses throughout the greater Hartford area and the Litchfield County area. We can help identify, put a value on, and advocate for a fair division of digital assets including cryptocurrency in your divorce. We offer consultations by in-person appointment, phone conferences and zoom meetings. Please call us at 860-264-1551 or contact us to schedule a confidential consultation to see how we can help you.