Digital assets are set to cause chaos in divorce settlements, warn lawyers, with couples being recommended to adopt prenups to help avoid problems.

According to the Financial Conduct Authority, over 2.3 million UK adults now hold some form of crypto asset, such as Bitcoin.

And NFTs (non-fungible tokens), which are bought and sold with cryptocurrency, are also rocketing in popularity. The global NFTs market hit £16.5 billion in 2021, according to DappRadar – that’s 220 times its value in 2020.

Like cryptocurrencies, the value of NFTs can be volatile, and their marketplace is unregulated and decentralised. In addition, NFTs can’t be divided up like cryptocurrencies can be.

Yet they’re becoming more common across financial portfolios, causing issues in dealing with marital breakdowns and leaving the judicial system playing catch-up, say lawyers.

Che Meakins, a lawyer specialising in prenuptial agreements at Rayden Solicitors, encourages couples entering a marriage to consider a prenuptial agreement to “provide protection” in a landscape where digital assets are increasing.

“A prenup is simply a document that details how certain assets should be dealt with if a marriage or civil partnership comes to an end,” said Meakins. “Although they’re not legally binding in the UK, there is an increasing body of case law to show judges will uphold such agreements in the right circumstances, and they can greatly simplify legal matters after a separation.”

“Essentially, it gives you a safety net, because nobody knows what the future holds - both for a marriage and for new types of assets that might be complicated to divide,” Meakins added. “There’s also a lot of uncertainty around valuing assets such as NFTs and crypto. With a prenup, both parties can benefit from more clarity and peace of mind for the future.”

Issues around NFTs include anonymity, as the blockchain world they are part of is decentralised, anonymous and unregulated, meaning assets can sometimes be difficult to track down. There is also volatility, considering NFTs can plunge or surge in value unpredictably, making it tricky to determine a fair financial settlement.

In addition, with tax, it is not entirely clear whether all NFTs are taxable assets, and people could also wrongly assume that cryptocurrencies aren’t taxable, so it could be that not all assets are taken into consideration for a settlement.

Also, smart contracts - clauses attached to NFTs - could change NFT values in the future, and might include royalty payments, replicating the NFT for further sale or automatic sale of the NFT at a certain valuation.

Share Story: