When we think of splitting assets during a divorce, what typically comes to mind are items like the house, sentimental heirlooms, and even the beloved family dog. In recent years, many intangible assets like cryptocurrency and NFTs have risen to prominence as some of the most valuable in a person’s estate. These assets are subject to equitable division during a divorce. However, there is a unique set of problems with such assets. Intangible assets are difficult to value and there are concerns with spouses attempting to hide these forms of ownership interests. Just because you can’t see it... doesn’t mean it’s not there!
Massachusetts General Laws Chapter 208 Section 34 details the assignment of estate and the way in which property division is calculated by the Probate & Family Court. Everything of value acquired during a marriage is typically considered marital property, including intangible property. Intangible property is something that holds value but cannot be physically held. For example, goodwill is an intangible asset which represents the value of a company's brand reputation, and customer loyalty. As an asset, goodwill takes no physical form. By contrast, tangible property has physical form and value, like a car. Intangible assets include intellectual property (“IP”) like patents, trademarks, copyrights, and trade secrets, as well as digital assets like cryptocurrency and non-fungible tokens (“NFTs”). Other popular intangible assets include airline miles, other financial investments, and certain aspects of ownership in a business, like goodwill.
Traditional Forms of Intangible Assets in Intellectual Property
More traditional forms of intangible assets, such as IP can complicate property division. The four types of IP include patents, trademarks, copyrights, and trade secrets. IP ownership is not as uncommon as one may think, especially in a state like Massachusetts. Cambridge, Massachusetts is the state and region’s centralized hub for research and development, often dubbed the ‘Silicon Valley of New England.’
Just like tangible property, intellectual property and other intangible assets possess monetary value and if acquired during the marriage, are considered marital property subject to division during a divorce. IP can be difficult to determine an exact dollar amount for. For example, if one spouse is a copyright holder, copyright holders have the right to derivative works. Therefore, if an author were to create a sequel to an original novel while married, the sequel would be included in the marital estate. Spouses may be entitled to royalties, licensing agreements, or other profits depending on the terms of the respective deals. The potential for a piece of intellectual property to increase in value after the marriage is a fair presumption to make and the court will have to factor this into calculations.
Most IP ownership is public record, aside from IP holders who rely on common law and have not registered their work with the appropriate IP office. On the other hand, digital intangible assets are often more difficult to track down.
Digital Intangible Assets
The digital world of cryptocurrency, non-fungible tokens (“NFTs”) and other digital investments is confusing and overwhelming to many. These forms of intangible assets are growing in popularity and are causes of disputes between divorcees. In 2022, NBC News found that 21% of American adults had owned cryptocurrency at one point in their life. These financial investments are subject to division in the instance of a divorce.
Like IP, these types of digital assets are challenging to value for different reasons. NFTs and cryptocurrencies are fluid in value. For example, an interest in Bitcoin may fluctuate significantly on any given day and even by the hour, depending on the market conditions. NFTs may be subject to societal changes in artistic taste. As a solution, Courts may estimate value by using the purchase price or a USD conversion rate.
Another overwhelming issue with digital intangible assets is when one spouse is unaware of its existence. In high-net-worth cases, rather than hiding money in the Cayman Islands, spouses may now hide assets in digital investments. Recently, there have been a number of cases where spouses converted their money into cryptocurrency to avoid dividing financial assets with their partner, relying on the anonymity of the digital platform.
Cryptocurrency: Cryptocurrency is digital currency exchanged through an online, anonymous ledger that doesn’t rely on any government or bank to maintain it. The most well-known form of cryptocurrency is Bitcoin. There are a few ways to approach valuating cryptocurrencies. One solution is to simply distribute the assets as cryptocurrency. Another option is to liquidate the assets and then distribute them to the parties. Or if the value of the cryptocurrency continues to fluctuate significantly, parties may adjust their settlement agreement to remedy this.
NFTs: NFTs are unique digital files and are most popularly used in the digital art space. Like a trading card, you don’t own the underlying IP rights of the work, but you own the unique file. Since NFTs cannot necessarily be divided, Courts typically value them just as they would another piece of fine art. Alternatively, the NFT could be sold, and the proceeds split evenly.
The division of marital property is often a contested issue between spouses. Experts may be called upon to provide a professional valuation of the assets. If the parties cannot agree on a valuation, it may need to be settled by the court. Our team of attorneys at Ryder & Phelps, P.C. is well-versed in complex, high-asset divorce cases. Visit our other blog post on this topic, ‘Cryptocurrency, Digital Assets, and Divorce.’