Is Your Spouse Using Digital NFTs To Hide Assets In Your Divorce?
This is the second in a blog series on sneaky new ways duplicitous spouses are attempting to hide marital assets in divorce. The first blog in the series can be found here: Top Signs Your Spouse Is Hiding Bitcoin Assets In Your Divorce.
Getting divorced and suspect that your spouse is being less than truthful in disclosing all their assets? Not quite sure where to look for hidden assets? If your ex is on the tech savvy side, NFTs – a new digital form of art — may be a hiding spot worth investigating.
What are NFTs? So-called “non-fungible tokens” are digital assets that represent real-world objects like art, music and videos. NFTs are part of the blockchain and are bought and sold online with cryptocurrency. The “non-fungible” part simply means that the object is unique – just like a one-of-a-kind work of art. Uniqueness is verified via digital signature.
NFTs are a current darling of the crypto world, with investors sinking thousands and even millions into NFTs that represent everything from original digital art to memes, tweets and viral Tik Tok videos. (Here are some examples.) In the second half of 2021, the NFT market was valued at $2.1 billion.
In some ways the goal with NFTs is the same as buying any original art piece – buy at one price in the hopes that it will appreciate and bring in a lucrative return on investment. However, as part of the blockchain, there are added ways NFTs can deliver added income. One way is through NFT “smart contracts.” Smart contracts are bits of blockchain code that parties to the NFT transaction agree will be executed at a certain time. For example, the owner and another party may agree to a sale of the NFT in 6 months at an agreed upon price, which is then encoded in the blockchain to automatically take place. The blockchain is unchangeable so even if the asset drops or fluctuates in value, or parties consider changing their mind, the future sales price is a sure thing to go through.
The owner of the NFT may also choose to “breed” their digital artifact by making a set number of digital copies that can be sold or licensed. Licensing can then generate royalties. These types of agreements may also be enshrined in “smart contracts” that cannot be changed.
NFTs as hidden assets in divorce
Bari Weinberger recently included NFTs in her round up of new hiding spots for marital assets, especially in high net worth divorce, in her latest article for the New Jersey Law Journal. Even with a basic understanding of NFTs, it’s easy to see how these digital assets can come into play when deceptive spouses decide to hide assets:
Anonymity. By existing in the crypto blockchain world, there is opportunity for greater anonymity with “secret” NFTs masking an owner’s identity. Just like cryptocurrency, in divorce discovery, these types of assets may be easier to hide and more difficult to track down due to reliance on a blockchain “key” rather than a proper name.
Smart contracts planned to execute after divorce. Actions embedded in a smart contract may include payment of royalties, selling the NFT when it reaches a certain value, and agreements to create limited replications of the NFT for further sale. Perhaps the presence of NFTs are disclosed in discovery, bu these provisions that create a much larger value for the NFT are not. For example, a future licensing sale worth millions may be in the “smart contract” pipeline, even if the current value of the NFT has fluctuated and is low at the time you sit down to divide assets and licensing plans are undisclosed. The spouse hiding this information is attempting to score a post-divorce windfall.
Gray areas persist. Legally, it’s not clear that all NFT’s will be treated as taxable securities, like cryptocurrency. This can create financial gray areas and may even provide an “oops, didn’t know I needed to disclose that” should a sneaky spouse gets caught with undeclared gains from selling or licensing their NFTs.
Finding hidden NFT assets in divorce
Think your spouse has become a secret NFT collector? Look for the following red flags:
The presence of crypto exchange apps or digital wallet apps your App store account. NFTs are almost always bought and sold with crypto, especially Ethereum crypto, the blockchain where NFTs originated. Finding evidence of hidden crypto activity is an important clue to keep digging. Any of the common crypto exchanges (Coinbase, etc.) offer apps for mobile crypto banking. If you share one phone account, you may be able to access the history of all apps downloaded to any phones on your plan. If you are not able to obtain this information on your own, your attorney can request this information during discovery.
Bank accounts show large singular cash withdrawals, or a pattern of smaller withdrawals of similar size. This kind of red flag behavior always warrants further investigation. Where did this money go? Trading cash for crypto or NFTs may be one possibility. Transferring cash to a PayPal account is another red flag. What was the purpose for this transfer? What was bought through PayPal?
Secretive behavior with account statements. Have paper bank and credit statements that once showed up in the mail suddenly stopped? Have passwords to online bank and credit accounts been changed? Call your bank and credit card company to request copies be sent directly to you for all joint accounts. Let your attorney know as soon as possible so that steps can be taken to make your spouse produce documentation of all joint accounts for evidence of crypto activity and/or buying or selling NFTs.
Following crypto and NFT accounts on social media. Carefully comb through your spouse’s media accounts. If your spouse follows crypto and NFT influencers, yet they claim to have no interest or activity in this area, this can be a big red flag to keep searching.
If you have reason to suspect hidden NFTs, working with a digital forensic accountant with training in how to find digital wallets and other traces of hidden NFTs and cryptocurrency may be needed. Talk to your attorney about your concerns and how best to get a clear summary of your ex’s financial activity.
Suspicious that your spouse is hiding assets during your divorce? We can help. For the guidance and answers you need, please contact us today to schedule an appointment with one of our highly skilled attorneys. Call us at 888-888-0919, or please click the button below.
