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Navigating a separation or divorce can be emotionally and mentally difficult for all involved. Dividing assets is challenging enough before you consider the added complexities related to digital assets.
Technology has impacted all aspects of our life, including the way we accumulate wealth. Nowadays, when separating couples are tallying up their assets and the wealth accumulated over the course of their marriage, they must remember to consider digital gains and losses.
Please note that this article is intended as an overview on the subject of family law, and is not intended as legal advice. For legal advice regarding divorce or separation in Ontario, we recommend you schedule a consultation with a family lawyer. Contact us to schedule a consultation with Gelman & Associates today.
What Are Digital Assets?
Over the last few years, concepts like “cryptocurrency” and “non-fungible tokens” (NFTs) have entered the public sphere. However, the meaning behind these popular buzzwords tends to get lost in the frenzy. As digital assets grow in legitimacy, it is important to understand what they are and how they impact your financial standing.
A digital asset is anything that is digitized and might not have a physical component. They are usually split into two categories: items with sentimental value and items with financial value. Some digital assets include:
- Wealth accumulated in the form of cryptocurrency or NFTs
- Digitized family photos and videos
- Accumulated loyalty points, online shipping, or travel rewards
- An entertainment collection that could consist of books, movies, music, video games, and more that may have been amassed over the course of the relationship.
- A couple’s shared online presence, which could include a blog, file-sharing sites, and various social media accounts
- And more
Similar to other assets, couples can grow a digital asset’s value over the course of their marriage or relationship, which may mean it needs to be divided upon divorce or separation.
Net Family Property Equalization
Over the last twenty years, we have witnessed a rapid growth in the value of personal, digital property. This shift has impacted almost all aspects of our lives, including how wealth may be accumulated during a marriage.
Ontario’s Family Law Act as well as the Divorce Act provide the framework used for splitting property, assets, and debts between separating and divorcing couples.
When you and your spouse separate or divorce, you are entitled to the equalization of net family property. Though a 50/50 split is not always guaranteed, it does mean that both couples must display the value of all liabilities and assets they have accumulated between their date of marriage and the date of separation or divorce.
Just like any other assets, all digital assets and their accumulated wealth must be part of a legal financial disclosure. To learn more about how to handle your digital assets during a separation or divorce, contact our Toronto family lawyers at Gelman & Associates today.
What about Cryptocurrency?
Historically, a digital asset has been referred to as anything that is in media format (like a picture, video, or document that has been created and stored in a digital environment). However, this description has changed with the introduction of blockchain technology.
Over a network of interconnected computers that are encoding and decoding information, blockchain is a centralized database that offers cheaper financial transactions than that of traditional banks. In short, blockchain has changed the digital sphere by making cryptocurrency possible.
Though it is not legal tender in Canada, cryptocurrency, or crypto assets, is digital currency by way of fungible tokens. With over 4000 types to choose from, cryptocurrency tends to be considered a highly volatile, high-risk investment that is bought and sold between other people on a trading platform.
Cryptocurrency and any wealth gained through digital assets must be disclosed and will be considered in the equalization calculation. It may be difficult to know what type of documentation or proof will be required, so it is recommended to reach out to a knowledgeable divorce lawyer or separation lawyer who understands how cryptocurrency works in relation to the Family Law Act.
Issues with Disclosing Digital Assets
There are some precautions to be aware of when considering digital assets such as cryptocurrencies and NFTs during the termination of a relationship. Familiarizing yourself with these may protect you and your separating partner as you undergo a separation or divorce.
In the past, cryptocurrencies have been used as a means to hide assets. Cryptocurrency is anonymous in nature, meaning that one cannot know the owner without their personal keycode. Sometimes, the key may be traced back to the owner through their wallet hardware (usually a third-party app used to hold cryptocurrency). Remember that under the law, you must disclose all your digital assets just as you would any other assets.
It may also be more difficult to determine someone’s income from cryptocurrencies. This may be particularly impactful when deciding child or spousal support payments. One may require more than just proof of capital gains from the sale of crypto assets, and in some cases, an income analysis report may need to be created. It may also be difficult to seize or freeze cryptocurrencies to repay a debt.
Precautions to Consider When Managing Digital Assets
Just like your other assets, there are preventative steps you can take to manage your digital assets that may protect them during a divorce or separation. It is important to keep good records of all your digital assets, from cryptocurrencies to digitized family photos. Keep a log of asset movements and payments, such as a financial inventory of all accumulated wealth. This may include monthly screenshots of crypto balances, buying and selling information, and more.
It may be beneficial to take digital assets into account at the start of a marriage or relationship in the form of a marriage contract/prenuptial agreement or cohabitation agreement. Keeping your digital assets and/or wealth gained through digital assets separate from your spouse may make the separation or divorce process easier should the relationship end.
Schedule a Consultation with Our Family Lawyers Today
If you have any questions about how to deal with digital assets during a divorce or separation or wish to explore your specific situation, contact us at Gelman & Associates today to schedule a consultation. Our family lawyers may be able to help you navigate through these complexities with personalized assistance and care.
Disclaimer: For specific legal advice on your family law matter, please consult with a family law lawyer. The content in this article is not intended to act as legal advice and is instead intended to act as a general overview of a legal topic.
