Divorce is Crypto

Divorce is crypto when digital cryptocurrencies like Bitcoin are involved. Be prepared for wild market price swings – as much as 40% – hard to trace assets on a decentralized network, the bankruptcy of the crypto currency exchange itself, and the ever-present risk of waste due to your spouse’s fraud.

Crypto divorce

Slum Dogecoin Millionaire

As the New York Times reports, Erica served her husband Francis with divorce papers and an automatic temporary restraining order that, among other things, prohibited him from transferring, concealing, or disposing of property without her written consent or court order.

However, after the divorce was filed, Francis initiated three bitcoin-related transactions. He wired money to Mt. Gox Company, a Japanese bitcoin exchange, to buy bitcoins. Then he arranged for his friends to buy bitcoins from Mt. Gox on his behalf without at the time disclosing the purchases.

Mt. Gox then ran into a few “regulatory difficulties” with the U.S. government. Federal agents froze bank accounts associated with Mt. Gox, seized millions of dollars, Mt. Gox suspended withdrawals, and went on to lose hundreds of thousands of bitcoins to hacking, embezzlement, or both.

As one expert testified at trial:

And my personal opinion at the time was only an idiot would leave his Bitcoins on Mt. Gox.

After entry of the divorce, Erica sought her half of the marital bitcoins. Only then did Francis disclose that the bitcoins were tied up in the Mt. Gox bankruptcy.

Florida Equitable Distribution

I’ve written about equitable distribution in Florida before. In divorce proceedings, in addition to all other remedies available to a court to do equity between the parties, a court must set apart to each spouse that spouse’s non-marital assets and liabilities. and in distributing marital assets, a family court must begin with the premise that the distribution should be equal, unless there is a justification for an unequal one.

In addition, many courts, including here in Miami, have Administrative Orders limiting what spouses can do once a divorce is filed. Similar to California’s automatic restraining, neither spouse can conceal, damage, or dispose of marital assets, waste jointly owned funds, and the use funds after separation must be accounted for and justified.

Put plainly, both parties are accountable for all money in their possession after separation and during the divorce proceedings and any party who violates these rules will be required to render an accounting and may be later sanctioned for wasting a marital asset.

Under Florida law, misconduct in the use of funds causing the loss of funds can cause a court to assign the value of the loss into the property division scheme. There has to be evidence of intentional dissipation or destruction of the asset which resulted from intentional misconduct.

Brother, Can You Spare a Bitcoin

A cryptocurrency is a digital or virtual currency secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology. They are historically not issued by a central government, rendering them theoretically immune to government interference or manipulation.

In divorce cases, similar to the days of hiding cash in a mattress, not reporting cryptos, or hiding them in online wallets, can make identifying and valuing cryptos difficult. But digital assets are not untraceable. Transactions are recorded on public ledgers called blockchains, enabling some analysts to follow the money.

There are forensic investigators who can track the movement of cryptocurrencies like Bitcoin from online exchanges to digital wallets. In multiple cases they have been able to trace millions in cryptocurrency.

Back in California, in addition to hiding his bitcoin purchases and using friends as proxies, Francis’s failure to inform Erica about the Mt. Gox bankruptcy breached his fiduciary duty. Had he disclosed these facts Erica could have objected or protected her interest in the bitcoins.

The California Court of Appeal affirmed the trial court ruling that Francis transfer $22,500 in cash and 249.445 additional bitcoins to Erica, along with the corresponding bitcoin gold and bitcoin cash. Francis was also ordered to pay Erica’s attorneys’ fees and costs incurred in bringing her motion.

The New York Times article is here.

 

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