What Happens to Cryptocurrency at Separation?

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Cryptocurrency may be a relatively new asset, but courts have dealt with cases concerning cryptocurrency during separation. In many ways cryptocurrency is simply another asset that must be accounted for under existing legislation. This means parties must provide full disclosure of any cryptocurrency just as they would with any other asset. It must also be counted as property by one or both spouses, and possibly made available for equalization. However, there are some unique issues that arise. Cryptocurrency can be volatile, and courts have heard arguments concerning disclosure and whether losses should be attributed to a single party and not shared between both spouses. 

Disclosure of Cryptocurrency Essential in Family Proceedings 

Cryptocurrency is like other assets and must be disclosed and a valuation provided. However, the security of cryptocurrency may require special considerations when it comes to providing disclosure. This was at issue in M.M.D. v. J.A.H. In that case the respondent held cryptocurrency investments worth over $9,500,000. He requested that only redacted documents concerning that investment be produced to the Applicant and filed with the court. He argued that there was a risk that production of information was a risk and would leave himself open to attacks and could enable third parties to access and steal those assets. There was no expert evidence on the issue, but the judge acknowledged that cryptocurrency was “clearly a volatile, emerging, intangible source of wealth which the courts will have to grapple with more frequently in future.” Here, the judge found there was no prejudice to the applicant if she received disclosure of the cryptocurrency in a redacted form, as there was a greater risk of prejudice to the respondent which could compromise the security of the asset if he made an unredacted disclosure. 

In M.E. v. K.K., it was alleged that the respondent supplemented his income by trading in cryptocurrencies and failed to disclose those assets, and consequently suggested the judge could attribute additional income to the respondent beyond what was listed in his T4. The applicant pointed out that his spending and lifestyle had not declined. The respondent challenged this portrayal and argued that his accounts showed that he had to withdraw from his savings to cover this child and spousal support obligations and school fees in addition to his living costs during a 22-month period of unemployment. However, there were challenges with the respondent’s evidence. For instance, certain bank accounts showed up on one financial statement but were left off of the subsequent statement. And as for his cryptocurrency, he claimed that the “account dried up and did not amount to much money”. 

On cross examination, the respondent did admit that his financial disclosure was not complete. Moreover, while there were incomplete details provided, he completely failed to disclose his cryptocurrency trading. The applicant successfully provided evidence to justify imputing additional income in part due to his trading in cryptocurrency. The court was permitted to draw a negative inference giving the court some latitude in imputing his income.

Treatment of Cryptocurrency for Property Division

Like other assets, the ownership of cryptocurrency must be established so that it can be reflected in the parties’ net family property. The valuation must also be fixed, and gains and losses from a cryptocurrency investment must be properly attributed. In Kostrinsky v. Nasri it was claimed that the respondent had cryptocurrency as of the valuation date that was not recorded in his net family property.  The applicant also claimed a resulting trust in the respondent’s BitCoin. She alleged that her credit card was originally used to purchase the BitCoin and was done without her consent. She pointed to section 14 of the Family Law Act which contains a presumption of a resulting trust in questions of the ownership of property when property is transferred between spouses. The respondent conceded that he owned cryptocurrency and that he had purchased BitCoin with the applicant’s credit card. The applicant calculated the value of the BitCoin using US dollar exchange rates to determine the value of the BitCoin in Canadian currency on the valuation date. The respondent did not agree with the applicant’s current value of the BitCoin, but he did not offer a competing calculation. The judge accepted the applicant’s calculation and found the applicant had a resulting trust in the BitCoin. 

In T.E.A. v R.L.H.C., the parties maintained a corporation that was used as an investment vehicle during their marriage. The value largely consisted of cash and securities. However, the respondent purchased cryptocurrency which subsequently lost significant value. The claimant argued that the loss in value due to the respondent’s investment in cryptocurrency should be borne solely by him. The judge rejected this argument, finding that the investment was done to benefit the corporation and was not done for any improper purpose. As a result, both parties should bear the loss equally, just as the two benefitted from the gain in value of the securities that the corporation held. 

A similar scenario arose in Nissen v. Nissen. In that case the respondent placed some of his business’s money in a cryptocurrency investment. This was an area where the respondent had no experience, and he did not tell the appellant about the investment. The investment lost money. When it came to dividing the value of the corporation between the parties, the appellant hoped to attribute the losses solely to the respondent. However, the judge did not find that the investment was a dissipation of corporate assets. It was not unusual for the parties to make large investments without any discussion, and the judge added that the respondent took actions that he thought were appropriate for his business. His decision to invest in cryptocurrency on its own was not a factor that impacted the distribution of property. 

Evidence of Cryptocurrency Holdings Important 

When a court has knowledge of a party’s cryptocurrency the account owner will still need to make disclosure and provide the necessary information to reach a valuation. Mere assertions will not be enough, and the party should provide evidence to substantiate their claims. In a British Columbia case, the respondent invested over $100,000, but his evidence was that he was not successful at trading and that some of the exchanges he invested in went bankrupt, and that eventually all the money he invested was lost. However, there was very limited documentary evidence to support this – only one document that indicated a near zero balance in one account. The judge did not accept that all the assets were simply lost. Although the judge was prepared to accept that there were some losses, he still attributed a value of $60,000 to the cryptocurrency accounts. 

Failure to Disclose Cryptocurrency can be Costly 

Cryptocurrency must be accounted for during separation in the same way that other assets are. And parties still have to meet their disclosure obligations. As a volatile asset, courts have heard parties allege that their investments in cryptocurrency disappeared or amounted to nothing. However, courts will often require more, and parties should be able to account for losses that occurred, or courts may simply attribute a value to cryptocurrency accounts.

Windsor Family Lawyers Answering Questions About Cryptocurrency Assets and Separation

The family lawyers at Howie Johnson Barristers and Solicitors in Windsor focus exclusively on family law matters. We can provide you with valuable information tailored to your unique situation so that you know what to expect and can understand your rights and obligations. To discuss your matter further or arrange a consultation please contact the firm online or call 519-973-1500.

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