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How NFTs Are Handled in a Pennsylvania Divorce

By Sheryl Rentz on November 2, 2021

A painting hanging in a gallery.

What Is an NFT?

NFT stands for Non-Fungible Token. This is a unique digital asset that only one person has ownership rights to. An NFT is usually either a physical image such as a graphic or a photo, or a short audio or video clip. NFTs are often created by a famous artist or recording star. Although the images or sounds in an NFT can be reproduced, when you buy an NFT, you get exclusive rights to the original digital asset, which cannot be reproduced thanks to blockchain technology.

It may sound unusual to buy something that only exists in digital form, but a lot of money is being spent on NFTs. For example, someone recently paid $6.6 million for an NFT video, and a work of NFT graphic art has been auctioned at Christie’s. Just like any other type of artwork, NFTs are assets that must be accounted for during property division in divorce proceedings.

A Risky Asset with an Uncertain Future

NFTs are a new concept based on a new type of technology, which is a highly volatile combination. While it is very unlikely that anyone will ever be able to counterfeit an NFT, they frequently consist of images that are already viewable, either in a museum or online. That means the purchaser is merely buying the right to say, “I own the official digital copy of this particular thing.”

Although NFTs are all the rage now, they are easy to produce and there’s no reason to believe they will continue to rise in value. Like the famed Dutch Tulip Mania of the 17th century and so many other investment booms over the years, there’s a definite possibility that the bottom could fall out of the NFT market at any time.

Rules for Digital Asset Division During a Divorce

When they say an NFT is “non-fungible,” that means it can’t be replaced by something of a similar nature. For example, a barrel of oil, an ounce of gold, or a $100 bill can all be replaced or even split up. Someone can give you five $20 bills in exchange for a $100 bill, and you could both be certain you were getting a fair exchange.

As with any work of art, splitting up an NFT is impossible. That means, when it comes time to determine who will get the NFT in a divorce settlement, selling it and splitting the proceeds is often the simplest and most equitable solution. Another alternative is to determine a monetary value for the NFT that both parties can agree on and then exchanging it for assets of equal value. This can be very tricky, however, as the value of an NFT can change dramatically between a couple’s separation date and the eventual day when the assets are divided.

Dividing Your NFTs and other Complex Assets

NFTs are one of the newest items to account for in division of marital assets, but they are far from the only thing that can make equitable distribution difficult. Complex questions require the assistance of an experienced divorce attorney. Founded in 1992, the Law Offices of Sheryl R. Rentz, P.C., has tackled many complicated cases and can help walk you step by step through the legal process of divorce. Call (610) 645-0100 to learn more.

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