Cryptocurrency and Divorce Cases

Cryptocurrency and Divorce Cases

Divorce cases with cryptocurrencies have undoubtably been adjudicated by now. However, written appellate opinions are still sparse at this time in Guilford County and beyond. But more and more Americans are investing in crypto, and we should begin seeing more complex cases being published shortly. Below are two cases, one from California the other from Washington, both community property jurisdictions. One case involves a spouse hiding cryptocurrency during a divorce and the other case involves dividing Bitcoins in a divorce.

Chao Liu v. Junhuia Chang (Wash. App. 2020):

Plaintiff wife and Defendant Husband were in a proceeding for division of their property in 2017. Mother introduced a screenshot of Husband’s Bitcoin wallet showed that Husband owned 53.21 Bitcoins valued at $504,766. Husband testified that he had sold all those Bitcoins in 2015 to support himself. But he also produced account information a month before trial that evidenced his ownership of the 53+ Bitcoins.

The trial court ultimately did not find Husband’s testimony credible; notably, even allowing Husband to bring his computer to court to show the current wallet balance, which Husband did not do. The court valued the Bitcoin and distributed that value to Husband, and he appealed. This was reviewed under an abuse of discretion standard, and given the trial court record, no abuse was found.

The interesting part of this was that the trial court had written in their order that due to the nature of cryptocurrency, it was difficult for anyone but the owner of Bitcoin to establish how many Bitcoins were owned and at what time and what value.

This case’s result was only because Husband was unable to prove that he did not have Bitcoin. It perhaps signaled that more extensive discovery may be needed to determine ownership. Bitcoin itself is only pseudo-anonymous, through some forensic investigations, it is possible to determine the owner of Bitcoins. As referenced in the previous segment, if you suspect or find evidence that your spouse has secret cryptos, it may be worthwhile to delve deeper to determine the extent of ownership and an accurate value.

Desouza v. Desouza (In re Desouza), 54 Cal.App.5th 25, 266 Cal.Rptr.3d 890 (Cal. App. 2020)

In January of 2013, Plaintiff wife initiates the divorce proceedings, and is granted an “automatic temporary restraining order that . . . prohibited him from transferring, encumbering, hypothecating, concealing, or in any way disposing of any property, real or personal, whether community, quasi-community, or separate, without the written consent of the other party or an order of the court, except in the usual course of business or for the necessities of life.”

However, Husband then goes on to make multiple purchases of Bitcoin through his friends. They are held in the Mt. Gox account. In total, he purchased 1062.21 Bitcoins for $144,391. In 2017, the party’s property trial was held, and a judgment was entered that ordered Husband to divide his Bitcoins evenly. Between 2013 and 2017, Mt. Gox suffered a hack, legal issues, and was forced to declare bankruptcy. Thus, Husband had only had possession of 613.53 of his total Bitcoins. However, this only came to light after the entry of the judgment. Wife then moved for post-judgment relief seeking immediate transfer of her interest in the Bitcoin, and for further remedies available by California law. The trial court eventually also ordered Husband to transfer a further 249.445 Bitcoins, and $22,500 in cash to Wife, and awarded attorney’s fees. Husband appealed.

On appeal, the Court held that in concealing these Bitcoin transactions had violated a fiduciary duty that California imposes of married couples, continuing even through separation. The fact that Wife did not know that a portion of the Bitcoin was tied up by Mt. Gox’s bankruptcy and legal woes was a material omission. If Wife had known, she may have objected to an in-kind division of the Bitcoin. Had she known about Husband’s decision to purchase in the first place, she could have motioned to enjoin Husband from the initial purchase. The fact that Wife benefitted from his unilateral decision to purchase Bitcoin (the value had skyrocketed, and the investment was worth millions), would not be an excuse for Husband’s actions. The trial court’s order was affirmed.

The cases both illustrate some of the difficulties associated with crypto in divorce. Namely, identification of existence, ownership, and value. It also brings up a practical consideration for distribution of property: in-kind distribution, or distributive award? The need for accurate accounting of crypto is apparent, but thankfully it seems like discovery tools are catching up with the technology. Our divorce lawyers in Greensboro have expertise in the emerging field of cryptocurrency and can advise you in this process.