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What You Should Know About NFTs and Your Divorce

What You Should Know About NFTs and Your Divorce

In the news lately you might have heard a lot about Non-Fungible Tokens, or “NFTs”. But just what are they, exactly, and how can they affect you in a divorce you ask? We are getting ready to take a deep dive into the art and digital art world, so put on your aprons, get out your canvases or cell phone cameras, and read on to learn more about NFTs and what it can mean for you in your divorce case.

An NFT can digitally represent any asset, including online-only assets like digital artwork, and real assets such as real estate. NFTs are currently most popular in the online digital art world, which will be the area of focus in this article. To understand what an NFT is, first you need to understand the difference between fungible and non-fungible items. A fungible item is an item that is interchangeable or can be substituted. For instance, if I loan you $20 by giving you a twenty-dollar bill, and you pay me back with two ten-dollar bills, it will not matter because the bills are interchangeable and worth the same amount. The dollar bills are considered fungible assets.

An NFT, on the other hand, is a non-fungible asset. Assets like diamonds, land, or baseball cards are not fungible because each unit has unique qualities that add or subtract value from the asset. For instance, if a card collector delicately handed you their 1952 Topps Mickey Mantle Baseball Card (last sold for $5.2 million) and instead you handed them back a 1991 Michael Jordan Upper Deck Baseball Card (currently worth $17.00), they would be calling for security while simultaneously reaching for a baseball bat. While technically the same size and shape, the baseball cards’ intrinsic values are not interchangeable. The cards represent different players with different baseball experience, different batting averages, different amount of time in MLB, and different Rookie years. You cannot just exchange one card for the other, like you would be able to with cash.

At the heart of the NFT is the issue of authenticity and the ability to call yourself the proud owner of the NFT. (https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq ) By way of comparison, let’s look at a contemporary art, non-digital example. For art aficionados and the not-so interested alike, most people have seen Andy Warhol’s collection of paintings of Marilyn Monroe, known as the “Shot Marilyns.” (https://www.latimes.com/entertainment-arts/story/2022-05-09/andy-warhols-shot-sage-blue-marilyn-sets-new-auction-record ) Interestingly, they are called the “Shot Marilyns” because when artist Dorothy Podber came to Andy Warhol’s studio in fall of 1964 and saw four of the five paintings piled in a stack, she asked Warhol if she could shoot the four pieces of artwork. Warhol agreed, thinking she was going to shoot photographs. Shockingly, the performance artist pulled out a gun and shot the canvases, piercing them with holes. The four paintings were later repaired, but the name “Shot Marilyns” stuck. (But I digress.)

Many people have seen prints of the Shot Marilyns. In fact, thousands have prints of those works, hanging on the walls of their homes (without the bullet holes.) However, bragging rights of the original Shot Marilyns go only to the actual owners. “Shot Sage Blue Marilyn” was recently purchased on May 9, 2022 by Larry Gagosian for the record price of $195 million. Auction house Christie’s in New York sold the work, setting the new record as the most expensive 20th century artwork ever to sell at auction.

Returning to the digital artwork world, NFTs also give the original owner bragging rights, or the pride of ownership. While digital artwork is downloadable by millions of people over the internet, only one person—the owner of the NFT—can claim they own the digital image, just like only Larry Gagosian may claim he owns “Shot Sage Blue Marilyn.” In 2021, the Auction house Christie’s sold an NFT titled “Everydays: The First 5000 Days” by Mike Windelmann, who goes by the name of Beeple, for $69,346,250. (https://onlineonly.christies.com/s/beeple-first-5000-days/beeple-b-1981-1/112924 ) The work is a collage of 5,000 drawings, one created and posted every day for the past thirteen and a half years. This gave Vignesh Sundaresan, the proud buyer of the digital artwork, ownership rights, even though anyone can download the image onto their computer for free.

NFTs are a newer phenomenon, just recently hitting the news and crossing over into mainstream art and well as currency and real estate. While some digital artists, like Beeple, take their digital artwork very seriously, others view the trendy NFT artwork as a case of The Emperor has no clothes. Regardless of where you fall on the spectrum, NFTs can represent a significant source of income and/or wealth.

Now that you know more about NFTs, what does this mean for your divorce case?
• If you or your spouse purchased NFTs during the marriage using community property funds (earned income during the marriage), it is considered property that is subject to the 50-50 community property division.
• If your spouse purchased the NFTs with separate property funds (earned income before marriage, after the date of separation, or through inheritance or gift), or if there was a prenup in place, the NFT might belong solely to your spouse, entitling you to nothing. While your spouse might argue that this follows along the lines with Russian painter Wassily Kandinsky’s famous quote that “there is no must in art because art is free,” given the extreme wealth in NFTs, you need an experienced family law attorney to know the specific facts about the NFT purchase and protect your rights.
• Your spouse might have told you, “Honey, I’m buying an NFT” and you might have written it off as just another purchase on your spouse’s whim. Regardless of whether you knew the value of the NFT purchase or not, there could be hidden wealth there and you need to follow up.
• Because NFTs are so new to the scene, you will need a knowledgeable and experienced family law attorney to help advise you and work on your behalf. Do not “shoot yourself in the foot” by trying to do this yourself (reference to the above-mentioned Shot Marilyns, of course.)
• Because the value of NFTs are so volatile and can change overnight, you need to act quickly to protect your assets. Beeple’s NFT, which sold for over $69 million, only had an opening bid of $100.00! Do not underestimate the value of your NFTs, and do not assume that the NFT you or your spouse purchased is just a case of the Emperor has no clothes.

Should NFTs be an issue in your case, you need the advice of a knowledgeable and experienced family law attorney to “paint” you in the right direction. If you would like to schedule a consultation with our office, you can contact us at (949) 234-8280 or visit our website at Divorce.Legal.

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