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January 10, 2023
Is Cryptocurrency Divisible Under Laws of Community Property

Is your spouse hiding assets? Do they have cryptocurrency holdings? Is cryptocurrency considered separate property?

You may wonder how cryptocurrency as an asset class, or a means of producing income, may impact your divorce or support proceeding. This can happen even if you are in a support proceeding that does not result from a marriage dissolution. You may also be wondering if you’re in a dissolution of marriage, is cryptocurrency divisible under community property laws?

If you have any questions or would like to speak with a skilled attorney about a family law matter—including is cryptocurrency divisible in divorce—contact Hartley, Lamas, Et Al today at 805-919-8346.

You’re wondering, how cryptocurrency as an asset class, or as a means of producing income, may impact your divorce or your support proceeding. This can happen even if you are in a support proceeding that does not come out of a dissolution of marriage. You’re wondering, if you’re in a dissolution of marriage, is cryptocurrency divisible under community property laws?

My name is Carla Hartley. I’m an attorney licensed to practice in Texas and California, and I have been practicing primarily in the area of family law, with some elder abuse, probate, guardianship practice.

Since I started practicing law, lo these many years ago, I’m on the Executive Board of the Ventura County Family Law Bar Association, and I am on the board of the Ventura County Bar Association. I’m an active member in the bar association of the state of Texas and in the state of California.

Cryptocurrency Overview

So, let’s move on to cryptocurrency and how we’re going to talk about it. I’m going to divide this into two ways to treat crypto. One is if you’re looking at finding where the crypto assets might be hidden. Now, people are worried they can’t find the crypto. How do I find it? It’s treated like a mystery. And I think this is worth discussing even though current cryptocurrency values are in a swan dive.

The blockchain movement has broad support and we are seeing the big money from the big bankers continue to go into—and the big venture capitalists—continue going into the blockchain. Cryptocurrency is the primary currency exchanged on the blockchain.

So, some people have referred to this as web 3.0. I think you’d be talking to Peter Thiel with referring to this as web 3.0. The guy who developed NetScape [Mark Andreessen] and sold out for a gazillion dollars, he’s also referred to this and has invested heavily in it. So, I think we have to look at this as the wave of the future.

Having established that, even though cryptos in a swan dive, I don’t know if the values are going to come up anytime soon, I don’t know what’s going to happen with the values of the individual tokens that are on the market.

How to Find Your Spouse’s Cryptocurrency

Now, that is not the purpose of this discussion. The purpose of this discussion is if your spouse has put money into cryptocurrency, how do you find it? Because, I’m finding that this is a primary way people like to hide their money.

So, the United States passed laws a while ago, not too long ago I guess, requiring any cryptocurrency exchange or wallet to know who was investing with them. So, in order to form a wallet, a cryptocurrency wallet, or in order to purchase any form of cryptocurrency on any exchange, you must provide government-issued ID, and you must give them a link to a bank that is associated with the name on your government-issued ID. So there’s a paper trail to start off.

How far back we’re going to have to go to look at the bank records to see where that money went is going to be interesting, but this is why family law attorneys like to look at bank records. it’s why it often pays off for us to look at bank records.

We’re looking for that transfer. It can be a series of small transfers that will add up over time, it could be one big transfer where somebody a couple of years ago was thinking, I’m going to plan on getting me a divorce. So, that’s the first step.

Now, how do we find out how much was purchased when it went over there? How do we find out what presently exists? So, cryptocurrencies, their value changes over time in association with the US dollar, but the number of cryptocurrency tokens that you have tends to remain constant, unless you’re spending them like anything else.

So right now, you’re looking for say twenty four Bitcoin tokens, they’re out there somewhere you just don’t know where they went. And you don’t know, so you’re going to hire an attorney, or someone similar to me, to go find it.

Cryptocurrency Exchanges

Well, let’s start with MyEtherWallet. How would I subpoena MyEtherWallet? MyEtherWallet is not doing business in the state of California. They are not registered with the state of California’s Secretary of State.

But MyEtherWallet is a wallet. It is not an exchange. Although you can swap tokens there, it is a wallet. You’re going to be looking for the exchanges where MyEtherWallet trades, all right? So, you can have Binance as an exchange. You can have… Coinbase is a U.S. sanctioned exchange, and there are other exchanges. There are numerous exchanges out there.

You’re going to be looking and your attorney hopefully will be looking to see who is licensed to do business, who has registered with the Secretary of State in your state to do business there.

Binance is registered to do business in Delaware. Coinbase is registered with the Secretary of State here in California. Binance was registered with the Secretary of State in California, but that has been withdrawn or I think forfeited, they just forfeited their licensure here.

Issue a Subpoena

So, you’re going to be looking for someone who knows how to issue a subpoena in the different states where these exchanges may have developed. This can get tricky. Some states, for instance, Pennsylvania is one, can require that you open a case in Pennsylvania before the corporation will honor—the corporation you’re subpoenaing information from—will honor a subpoena. They want a case in their state and then they will honor a subpoena issued from that state.

This is not impossible. We’ve even had to open a case, I think, in India in order to execute service of process. So, this is something that many attorneys who practice in the area of family law don’t have vast experience with.

Cryptocurrency, I don’t know if there are many attorneys anywhere that have vast experience with it. It’s too new. However, it is interesting, it’s a lot of fun, and it’s always fun to catch someone who’s hiding money.

Is Cryptocurrency Available for Spousal Support?

Now, the second part of cryptocurrency is, how are people making money on it? Is that money income available for support? Yes, if they’re making money, it is. And some people are doing what amounts to day trading on the cryptocurrency exchanges.

I think I have read some things that this is one of the reasons for the recent meltdown. We had the stablecoin, which was UST—I think that’s Tara—was supposed to be pegged to the US dollar. And people were trading in and out of that as inflation was going on because the dollar was, the difference in price, they would trade up or they would trade down, they would make money on every transaction, and it de-pegged the stablecoin from the US dollar, making it a very unstable coin indeed.

So, now we have this big meltdown. That does not mean that there are not other people out there making money. For instance, Dogecoin recently had a tremendous drop in price. A number of people bought it, it went up a few cents, and then they sold.

If you’re buying and selling enough volume, this is something that can produce real money for certain people. And that is money that is available for support. It is income available for support under whatever law you want to look at. So, let’s come back to this.

If you continue to reinvest, as with stocks, if you have stocks and you sell a stock and you reinvest the stock, that’s not income available for support, because that would be liquidating. But if you have normal regular stock options that you are exercising and taking as income on a regular basis, that is income available for support.

So, it’s going to turn on the facts of each individual case.

Is It a Job Or Is It a Hobby?

As to whether someone’s making lots of money with cryptocurrency as a job, it’s going to come back to this same old, same old analysis. Is it a job or is it a hobby?

If it’s a hobby, is it a very, very lucrative hobby? Or is it something that really they’re making de minimis amounts on and that the court doesn’t want to bother considering?

Your question, the question your attorney has to ask you is, do you think they’re making enough money to justify paying an attorney to go looking? Because that can cost a lot more sometimes than these people are making from the crypto.

Disclose Your Earnings and Assets

Don’t forget, if you’re one of the parties that has the crypto, and is making money from the crypto, you have a duty to disclose the earnings and the assets in any dissolution of marriage proceeding, and the earnings, in any support proceeding, in either state, Texas or California.

Legal Help with Cryptocurrency in a Divorce

So, that’s all I have to say today. I think I’ve gone over on my time. I hope this has been helpful, I think this is a fun area of law, it’s a fun asset class to look at, and it’s always fun to find where people are hiding money. I hope this has been helpful.

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