Digital Prenups Addressing Cryptocurrency And Nfts In Divorce | Divorce Decoded

Summary

Prenuptial agreements are increasingly addressing division of cryptocurrency and NFT assets in the event of divorce. To craft an effective digital prenup, the couple should comprehensively inventory their crypto and NFT holdings, agree on a clear division and valuation method, and work with specialized legal counsel to handle the complex technical and legal issues involved.

Here is my attempt at a comprehensive, detailed blog post on digital prenups addressing cryptocurrency and NFTs in divorce, with HTML formatting:

Digital Prenups: Addressing Cryptocurrency and NFTs in Divorce

In our increasingly digital world, prenuptial agreements have begun to evolve beyond simply addressing physical assets and now often incorporate provisions related to a couple's digital assets as well. Two asset classes at the forefront of this trend are cryptocurrencies like Bitcoin and non-fungible tokens (NFTs). Including clear stipulations for how these digital assets would be divided in the event of divorce can help avoid costly legal battles down the road.

If you or your future spouse own significant cryptocurrency holdings or valuable NFTs, here is a step-by-step guide for how to account for these digital assets in a prenuptial agreement:

Step 1: Take an Inventory of All Digital Assets

The first step is to compile a comprehensive inventory of each person's digital assets and their estimated value. This should include all cryptocurrency wallets and their balances across various platforms, as well as any NFTs in each person's possession. For NFTs, include details like:

Description of the NFT and the underlying digital asset
Date and price of acquisition
Current estimated value
Blockchain the NFT is associated with (e.g. Ethereum, Flow, Tezos)
Marketplace(s) where the NFT is listed

Be sure to include access information and account credentials so there is a clear record. Engaging a certified digital asset appraiser to assess the value of significant NFT collections is also advisable. Having an accurate accounting of all digital assets from the start will make the process much smoother.

Step 2: Determine Preferred Division of Assets

Next, discuss and agree upon how you would prefer to split cryptocurrency holdings and NFTs in the event of a divorce. Some prefer an even 50/50 split of all assets, while others may want to keep their own digital assets separate. Another approach is a compromise, such as agreeing that each person keeps any cryptocurrency or NFTs they acquired prior to the marriage, while dividing any acquired after marriage 50/50.

For example, suppose Jennifer has 5 Bitcoin that she purchased in 2015 prior to meeting her husband Michael. During their marriage, the couple also obtained 2 CryptoPunk NFTs. Jennifer and Michael might agree on a provision that Jennifer retains full ownership of her premarital 5 Bitcoin, while stipulating that the CryptoPunks would be sold and the proceeds split 50/50 in the event of divorce.

Step 3: Specify a Detailed Valuation Method

Cryptocurrencies and NFTs are highly volatile assets whose value can fluctuate significantly in a short period of time. To avoid ambiguity, include clear language in the prenup specifying exactly how cryptocurrency and NFTs will be valued.

For cryptocurrency, stipulate that holdings will be valued based on the prevailing market prices on a predetermined set of exchanges (e.g. Coinbase, Kraken, Gemini) at a specific date or averaged over a set period. For NFTs, the prenup should reference a particular NFT valuation method or data source that will be used.

As an example, the prenup might state: "In the event of dissolution of marriage, any CryptoPunk NFTs will be valued using a 30-day weighted average of sales prices for the specific CryptoPunk on the Larva Labs marketplace and on NFT exchange OpenSea." Being as precise as possible in the valuation method will help minimize disputes later.

Step 4: Decide How Transfers Will Be Executed

Spell out the specifics of how any cryptocurrency or NFT transfers between the divorcing parties would actually be carried out in practice. Elements to include are:

Listing which crypto wallets and NFT accounts each party must transfer assets from and to
Defining the token standards and blockchains that will be used for the transfers
Specifying the timeframe in which all transfers must be completed following divorce
Requiring each party to cover their own gas fees and transaction costs for all transfers they are responsible for

A clause might read: "Within 30 days of divorce being finalized, Jennifer will transfer 50% of the total balance of her two Ethereum wallets (Addresses: 0xb794f5ea0ba39494ce839613fffba74279579268 and 0xd850942ef8811f2a866692a623011bde52a462c1) to Michael's Ethereum wallet (Address: 0x5ed8cee6b63b1c6afce3ad7c92f4fd7e1b8fad9f). Jennifer will cover all gas fees required to execute these transactions on the Ethereum blockchain."

Step 5: Plan For Future Appreciation or Income

Some cryptocurrency and NFT holdings may appreciate substantially in value or generate significant income after the divorce. To avoid future legal battles, the prenup should address how such appreciation or income will be handled post-divorce.

For NFTs, the agreement might specify that any future appreciation in value or proceeds from selling the NFT will be split according to the same percentages as the initial division. If an NFT was split 50/50, the parties would each be entitled to half of any future profits from reselling it.

With cryptocurrency, the prenup could state that any coins received as staking rewards, DeFi yield, or forks after the divorce is finalized are treated as belonging solely to the wallet owner at that time, even if the initial coin holdings were split between the parties. Another option is having the agreement only apply to the specific cryptocurrency balances held at the time of divorce, with no provisions for future appreciation.

Step 6: Outline Resolution For Disputes

Even with a well-crafted prenup in place, disagreements over dividing digital assets can still arise. The prenup should provide a clear roadmap for resolving any disputes related to cryptocurrency or NFTs in the settlement.

One approach is requiring the parties to first attempt to resolve any disagreements through mediation, before resorting to arbitration or litigation. The agreement should specify a particular mediation service with expertise in cryptocurrency and NFTs that will be used.

If initial mediation fails to resolve the dispute, the prenup can require binding arbitration under a set of arbitration rules that are crypto-friendly, such as the AAA Supplementary Rules for Cryptocurrency Disputes. Having a clear plan in place for dispute resolution can help the parties efficiently settle disagreements and avoid drawn-out legal conflicts.

Step 7: Engage Specialized Legal Counsel

Cryptocurrency and NFTs involve complex and novel technological and legal issues that require specialized knowledge. It's crucial to work with attorneys who have specific expertise with digital assets when drafting and reviewing a prenuptial contract that includes cryptocurrency and NFTs.

Look for a law firm that has a dedicated blockchain and digital assets practice group. Ask about the lawyers' experience advising clients on cryptocurrency and NFT issues in divorce settlements and drafting prenuptial agreements incorporating these digital assets.

Top law firms with specialties in this area include Perkins Coie's Blockchain & Digital Currency industry group and Winston & Strawn's Digital Assets & Blockchain Technology practice group. Consulting with legal counsel who deeply understands this space is essential.

In conclusion, cryptocurrency and NFTs are important assets to address in modern prenuptial agreements. Following this step-by-step process to thoroughly inventory the digital assets, spell out the specific valuation method and division plan, account for future appreciation, provide a dispute resolution framework, and engage knowledgeable legal counsel can help establish an effective prenup that minimizes conflict and protects both parties' interests in these digital assets if divorce occurs.

References

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