NFTs and Family law

A property settlement normally occurs after a relationship breakdown and involves the split of assets between the two parties. This can be done either with or without Court intervention. 

A property settlement involves identifying the total asset pool and splitting assets and liabilities in an equitable manner. This means that any cryptocurrencies or other crypto assets such as NFTs will be counted in the overall asset pool. Crypto assets can be difficult to deal with in property settlement, particularly as they can be hard to locate and value. See our article here about crypto and family law.

What are NFTs? 

NFTs, otherwise known as non-fungible tokens are a unique type of digital asset. NFTs can include things like artworks, videos or music. A NFT purports to give its owner the sole ownership of a particular digital asset. NFTs can contain smart contracts, which execute certain functions when some preconditions are met. For example, a smart contract on an NFT that is a piece of music can ensure that its owner receives a percentage of profit for any future sale of the token. 

Crypto assets can be difficult to deal with in a property settlement as they can be hard to locate and value.

What does a property settlement entail? 

A property settlement generally happens when a couple separates and decides to split their assets. The aim of a property settlement is to have a fair and equitable division of property between the two parties. This end result should consider the income of both parties, their financial needs in the future and other considerations, such as the care of children. 

Normally a property settlement involves four main steps: 

1. Identifying the total asset pool (including any crypto assets)
2. Assessing the financial and non-financial contributions of each party to the relationship
3. Consideration of each party’s future needs 
4. A final examination by the Court to determine a fair and equitable result 

This article will focus on the first stage of the property settlement process. Identifying the asset pool is made more difficult if an individual has crypto assets. There may be difficulties involved with valuing the asset and issues surrounding ownership. 

NFTs and the property settlement process 

There are 3 steps to undertake if your partner has any crypto assets (e.g. NFTs): 

1. Determine whether your partner holds any NFTs
2. Determine how many NFTs they have  
3. Determine the dollar value of their NFTs

The duty to give ‘full and frank disclosure’ 

In family law proceedings, each party to a property settlement has a duty to give the Court and each other, ‘full and frank disclosure’ of their financial position. This duty is a significant one as it allows both parties and the Court to have all the important facts before making an informed decision. 

Generally, if one party believes that the other party is withholding important information relevant to the case, a subpoena can be used. However, this process can be more difficult with crypto assets such as NFTs, as there is no central governing body that regulates these assets. This means that it may be more difficult to find an institution to subpoena if a party believes that the other party is not being completely transparent about whether they have NFTs to include in the asset pool of the property settlement. 

It may also be difficult to prove even the existence of these NFTs if the accusing party has no access to any accounts or does not have passwords. In these circumstances, it is best to obtain legal advice to ascertain the best route to take. 

Examples of documents a party may want to have produced to ascertain more information about the existence and value of crypto assets include: 

• Screenshots that show the current balance of crypto assets the party holds within their wallet or account
• A ledger of all transactions associated with their wallet or account
• Copies of bank statements that reflect any crypto transactions 

How will the Court value NFTs? 

The value of crypto assets are known to be volatile and unstable. This means that another potential challenge with having NFTs in an asset pool is their valuation. 

It is notable that there is no universally recognised entity that values crypto assets. This means that both parties will have to reach an agreement as to how the asset will be valued. If this does not occur, the Court can intervene and decide how the asset should be valued. 

If you need any assistance regarding crypto assets, a property settlement, or any aspect of family law, then feel free to reach us via the contact form.