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March 6, 2023
Why Should You Care About Digital Assets? | Exploring the Pros and Cons of Digital Currency

Digital Assets, Cryptocurrency, and Family Law Cases

Family law attorney Carla Hartley delves into the intriguing world of digital assets and why they should matter to you. With a comprehensive understanding of digital currencies and their implications in family law and probate cases, Carla provides valuable insights on topics such as the definition of digital assets, the pros and cons of digital currency, real-life examples of digital assets, and the future of this rapidly evolving landscape.

If you are seeking an experienced family law attorney in California regarding allocating assets between spouses, contact Hartley, Lamas, et al. now at (833) 647-2377 to receive a comprehensive examination of your case from our legal professionals.

Why should you care about digital assets? Why should you care about any of that vast, vast plethora of assets that can be hidden in the ether—lost as a matter of just not knowing what the password is?

Today, we’re going to be discussing why you should care about this, whether you are an attorney practicing primarily in family law or the probate spaces, or whether you’re a person who is being sucked into a family law or probate case and wants to know, where did all that money go?

My name is Carla Hartley, and I am an attorney licensed to practice in California and Texas. And I’ve been practicing primarily family law and in the probate area my entire career. So let’s get started.

What Are Digital Assets?

Electronic or digital assets are beginning to cover a wide, wide variety of different types of assets. And what we’re seeing is, although people have in most of these areas of law, the fiduciary duty to disclose assets, money, whatever, where it’s gone, there’s nothing on the forms yet. The law has not caught up with the pace of technology or even with where we’re at today, technologically.

As far as I can tell, we’re still getting cases trying to discover what to do with restricted stock units. And that’s something that started developing fully 20 years ago. So the wheels of the law turn slowly and technology is moving at an ever-increasing pace. And increasingly our assets, our world is being moved into the digital space. So what are some digital assets?

Airline Miles, PayPal & Venmo

Well, airline miles are being classified as a digital asset. They’re not a particularly valuable digital asset. But you would be amazed how many people will fight over them. Venmo, PayPal, what do you have in your Venmo and PayPal accounts? Which banks have you got them connected to? Now I think Venmo is erroneously characterized as a digital asset because it’s really just a bank to bank transfer. So you’ve got a bank at either end and PayPal is a little bit more of a digital asset type thing, but it’s still very linked to the banks.

But people are classifying these as digital assets. It’s not a credit card, it’s not a bank account. It’s not a savings account. It’s not stock. We’re calling it a digital asset.


Non-fungible tokens. Non-fungible tokens. For those of us who have struggled to figure this out, are becoming an increasingly likely form of future authentication of a purchase. Right now we’re seeing with the apes and other other types of artwork that you can buy one time and that it belongs to you forever and is digitized and then nobody else can own that digital print.

It’s not like what we do today when you’ve got a meme or you’ve got a photograph and you post it and then suddenly people are making memes out of it because they’ve taken screenshots. This is designed to prevent that, the Non-fungible token.

We have seen in the past 3 to 6 months, on the blockchains, a house has been sold. An actual physical house. Not a house in Fortnite. An actual physical house has been sold and authenticated with a Non-fungible token. The deed of sale. Yes, the deed is recorded physically, but also on the blockchain. So I think that is something we need to be aware of in the field of law.


Let’s move to the next thing. And the biggest thing right now that’s occupying everybody’s brain is cryptocurrency. How do we treat that? How do we figure out what it is? And why should you listen to me? Well, I’ve watched just about every MCLE I can find on this. And I’m pretty convinced, or I became convinced, that the people that are teaching the MCLEs, while they are struggling to know, are at the beginning of this as well.

And I think we need to take it a step further, because the questions they’re answering are not for family law attorneys. They’re not for probate attorneys. The question they’re answering is, what is it? Not how do I find it? Which is so often the case in our family law and probate litigation.

So let’s start with the duty of disclosure. Most family law cases, both in Texas and in California, all family law cases, have an affirmative duty of disclosure imposed on the other spouse. But that would mean that they have to tell you everything they know about all the money they have, about all the assets in which either party may have an interest, and about all the debts in which either party may have a liability.

The problem is, this isn’t an issue when people are actually doing their disclosure and saying, oh, hey, yeah, I need to add this. It’s not on the form, but I need to add that have some crypto. The problem is when you have the client that walks into your office and says that I know him/her, he/she is not going to disclose this. They’re going to hide it. They’ve been trying to move it for a couple of years.

And this is going to get to the crux of why I think the cryptocurrency world has had so much trouble and has currently so much volatility. Couple of years ago, the government didn’t know how to monitor this stuff. We did see problems on the blockchain with untraceable transfers of funds that were frankly being used for questionable purposes.

We’re not going to get into a free market discussion here, but we are going to talk about the tools that government needed to implement to make this a viable asset class and a viable way to transfer money without getting into the whole crime prevention and that sort of stuff.

Know Your Client (KYC)

So, he/she is not going to tell me. Let’s start with that. The first thing that you need to know is about a year and a half, two years ago, possibly three. I’m older now, so time flies. The United States Congress, Senate, executive branch, everybody got together and passed an act known as alternatively Know Your Client or Know Your Investor. And this requires someone investing in any space to prove who they are.

You’ve got to take photographs or scans of your I.D., front and back. You’ve got to provide other identifying information. And in some circumstances, you’ve even got to tell them how much income you are earning or what your net worth is, then provide proof of ownership of certain things. It varies depending on the asset class you’re investing in.

When I decided to get into this and start figuring out what was going on with crypto, it was because I had a client who was saying he/she is not going to disclose it. So we had to figure out how to find it and the best way to figure out how to find it is to buy some yourself and start figuring it out. Figure out how you would move it.

The first thing I ran into is this Know Your Investor or Know Your Client Act. Well, they’ve got my I.D., and they also now control how the money comes into the crypto universe in the first place. It’s got to come from either a bank or credit card. Now, once it’s in the crypto universe, it can be moved around from exchange to exchange, can be taken off the exchanges and put into a private wallet.

But the point that I’m trying to make here is it’s got to come from a traceable source that you as an attorney, or you as a client of an attorney, should be able to locate. Now I’m going to tell you, you probably need an attorney to do this and you’re going to need one that knows how to look for this, what to look for.

Okay. So with the Know Your Investor, Know Your Client Act. And we’re looking at something coming into the space from either, from the crypto space, from either a bank or credit card. And as I said, once it’s in the space, it can be moved around, but not with complete impunity.

So one of the great advantages that we have here is we’ve begun to trace it. Now, the speed of the blockchain, the speed with which these transactions can be done on the blockchain, is a little bit astonishing. You’re looking at a settlement period when you use a Visa or MasterCard, sometimes several days. I heard someone, I cannot remember who it is. I heard someone compare the speed of the blockchain, and the speed with which transactions can be settled on the Ethereum blockchain, for example, with the difference between high school and NFL football.

Things are happening at a pretty good level in some of your better high school teams, right? They’re moving fast. Hits are pretty hard. People can get hurt. But when you go to the NFL, it’s a whole new ballgame. It’s the speed of light difference. That’s what we’re seeing. In the difference between settling transactions on your old standard Visa, MasterCard, and your present blockchain ease of transmission.

Why Should You Learn About Digital Assets?

So this goes to why should you be learning about this? We’re in a crypto winter right now and you could actually call it a crypto swan dive. A lot of people have lost a lot of money on this. If they sell now, while everything’s down, they’ve certainly lost the money on it and they might feel that they can salvage something.

This is going to raise a number of questions with how the courts are going to treat this investment. And we’re going to get to that next. But for now, is this going to have legs? Is this going to be an asset class that you’re going to need to be worried about in the next 5 to 10 years? And I think it is likely that it will be.

FTX: A Decentralized Exchange

Right now, we just had something hit the news with FTX. It is a decentralized exchange and this guy was a crypto billionaire and he pretty much lost everything overnight. To the point where when Binance was offered the opportunity to buy FTX for a dollar, they declined. The problem that FTX had is it was holding a lot of cryptocurrencies—and I’m using the term cryptocurrency somewhat loosely, I’ll get into that later—was holding a lot of shares and a lot of currencies which were fully diluted in value.

That means they were holding a lot of stuff that had increasing mining and increasing creation. So it’s like similar to printing money. You hear a lot about that on the news when people say it’s a really bad thing. Well, this was what was happening with FTX. FTX was holding on to a lot of assets that were just going to continue to lose value because more and more and more of them were continuing to be made.

And then it was determined somebody leaked a balance sheet and said, oh my God, they’ve got all these fully diluted values, which means that the value that FTX was reporting on its books was grossly overinflated.

We’ve seen this story before and it didn’t kill an asset class. Okay. We’ve seen this story with Enron, with the books that they created, which didn’t reflect at all the value of the company and the assets it held. We’ve seen this with hedge funds that have gone under. We’ve seen this time and again and again with companies that are inflating their balance sheets and trying to stay alive.

So this is not necessarily, something that’s going to kill the asset class. It’s something that indicates the asset class is tied to the oversight. So I think that’s a good thing. And again, the companies that have been complying with the Know Your Investor, Know Your Client Act… the exchanges, an exchange, so you know, is a place where people can buy and sell crypto currencies, and sometimes trade one for the other.

So the exchanges need to hold enough assets that they can satisfy this. It’s like a run on the bank. What happened with FTX was in fact a run on the bank, just like the good old Jimmy Stewart movie, what, It’s a Wonderful Life?

When people decided, “Oh no, there’s not going to be enough money in the bank for me to get mine.” They all tried to get there first. That’s what happened with FTX. And again, in the entire history of currency, we have seen this happen again and again and again.

Will Cryptocurrency Have Legs?

So, back to will this have legs. Will the space, this investment space, continue to have legs that attorneys should be worried about it? Let’s look at who’s come into the space.

Coinbase Visa

Okay, Coinbase is partnered with Visa. You can now get a Coinbase Visa and buy and sell things with your Coinbase Visa. That is funded fully with cryptocurrency, including the US dollar cryptocurrency, which is considered a stablecoin because it is basically a US dollar that can be traded on the blockchain.

But this shows you the government is moving into this space and making sure they understand it. And I would just venture to say, when the government is trying to understand something, you should as well. We’re attorneys, and we have to interpret the law, and the government makes the law.

Banking Investment Into Cryptocurrency

So last week, Fidelity announced that they’re going to be making cryptocurrency available to the shareholders. That’s a big deal. A couple of months ago, BlackRock, which is one of the largest investment funds in the world, announced that they are partnering with Coinbase to make cryptocurrency available to their investors. Okay, BNY Mellon, which is the oldest bank in the United States, has put $600 million into the cryptocurrency space in the past six months, I believe.

American Express, in the past year, put $115 million into the cryptocurrency space. Citigroup, $215 million. Goldman Sachs, $698 million. This is not chump change, and it’s not chump change when we’re in a down economy.

What we’re seeing is very much what Morgan Stanley did. The Morgan Stanley CEO likes to talk about how this is such a horrible space, it’s awful, awful, awful. But Morgan Stanley has purchased over a billion dollars, has put over a billion dollars into the cryptocurrency space. And if you walk into one of their investment offices, you can purchase cryptocurrency and you can hold it with them at that bank. I know I have an account at Chase which has some of this in it.

So, this is happening, and the large banks are moving into it. It’s a method of determining whether this is going to have legs, and we need to figure it out as attorneys and as people that are looking at what your spouse has done with your money, and why can’t you find it?

Look at the adoption. It’s not being adopted by a few fringe groups right now. We’ve got many, many governments that are developing their own stablecoins. We have many, many major banks that are moving into the space.

In addition to that, Microsoft has put, in the past year, $477 million into the space. PayPal, $650 million. Google, $1.5 billion. And then we have Samsung, which put $1.6 billion in, because I guess they wanted to top everybody.

Swift Payments vs Cryptocurrency

So again, I think this is probably going to have legs, and I think the legs that it’s going to have are going to be measured by the adoption of the methodology for settling transactions. It’s faster.

Compare the current Swift system, which is what is on the news a great deal. Swift is a method by which if you’re in Korea and you want to buy something from Brazil, you have to go from the Korean yuan to the Brazilian, I think it’s a real, I think that’s what Brazil uses.

So right now, Swift has the Korean yuan going into the US dollar and coming out the other side as a Brazilian real, and vice versa. This has been what has been used for sanctions in many cases because if they refuse to transfer it into a dollar, then it stalls the transfer. So that’s international sanctions, and that’s a small example.

One of the reasons you see governments getting into this is because you look at what was happening with BRICS—Brazil, Russia, India, and China—were trying to develop their own version of Swift. So there’s a lot of change that’s coming to our economy and to the way we handle money, simply because of the digitization.

But many of our allies are also developing their own stablecoins, and this is going to be a unified effort by governments and by the people who are building out what they’re calling Web 3.0, which is going to be a lot less susceptible to hacking by virtue of its decentralized nature.

Family Law and Digital Assets

Still, we have to have some controls. I know there are people that disagree with that, but one of the controls is going to come down to the very most basic unit, which is the family. What has my spouse done with my money? How do I find it?

Well, how you find it is you go back a couple of years and you start subpoenaing records. If they won’t give you the record, you subpoena the records. That’s one way. There are other ways that I’m not going to just necessarily throw out there in this particular video. I’m going to save that for some other time and possibly for my own clients.

Dividing Crypto Assets In A Divorce

So now we’re coming down to, you found it, whether by disclosure because you had to go looking for it. Now, how do you divide it? How should the court treat these crypto assets? That is the question that is not really being answered because the courts are still figuring out, ‘what are these crypto assets?’

Is Crypto Like Money Or Like Stocks?

But let’s start with whether it should be treated as money or as something similar to a stock, because I’m going to equate it. Neither analogy is perfect. It’s called currency. It should be treated as money, right?

Well, what if you’ve got it staked in Ethereum? Okay, there are two ways to hold your Ethereum. One way to hold Ethereum is to simply hold it as Ethereum, keep it in your wallet, and you can liquidate it at any time. You can buy and sell things with it. That’s fabulous. That makes it like money, currency.

But what if you’ve staked your Ethereum, which means basically in return for interest to be earned in more Ethereum, you have agreed not to access your Ethereum until they have completed whatever step they’re taking? There are many assets in the digital space that are being staked. Some of them you can get out of with 10 days’ notice. Some of them you’re not going to get out of until the end of the haul when some upgrade is completed or some new platform has been launched.

So if you have staked Ethereum, you can’t liquidate it. You can’t. Now, they’re coming up with ways around this. You can wrap your Ethereum, stuff like that. But let’s keep it simple, because you’re going to court, for instance, next week, and how do you divide this?

In California, the court has a duty to divide assets equally in kind, unless the parties agree otherwise. If the court says, “Well, this staked Ethereum has this value as of this date, so we have money over here that we can just throw into this and equalize it, we’re done.” Great. That might work, and it might be giving somebody a future asset that’s going to be a lot more valuable than the dollars they traded off for. We do this all the time with houses. Somebody will buy out the other spouse’s interest in the house, somebody will buy out the other spouse’s interest in the pension plan. This is what can be done with something like staked Ethereum.

But you’ve got to know what’s going on with it before you can make the pitch to the court. If you ask the court to order, to just divide the staked Ethereum, the court cannot because the contract that the initial investor entered into with Ethereum when they staked it says, ‘you cannot’, and the court cannot dissolve that contract.

So, I think it’s important to know, first, how we are going to ask the court to treat the cryptocurrency in your case. First, we find it, then we have to figure out how we want the court to treat it. Now we’re in a swan dive right now. A lot of spouses are saying, probably, well, I know a couple that are saying, ‘Hey, I don’t want to be part of this. He can take it, he can take it to the present value. She can take it, she can take it to the present value. I want real money instead.’

Great. That’s your client’s investment decision, and your client needs to educate themselves on this, which is one reason to watch this video if you are a client, because you need to begin educating yourself on this type of thing without having to actually understand the code that goes into this huge buildout of a whole new world.

The Blockchain and Web 3.0

People are talking about the blockchain as Web 3.0. This is the other thing I want to address here. Web 3.0 is supposed to be this wonderful thing. A lot of people that are much smarter than I are saying that this is similar to what was happening when Microsoft and Apple were creating what we have now, which is Web 2.0.

And the people that were in that early, seemed to know what they were doing. They were having a great time doing it. They didn’t mind the risks they were taking. Seems to me that that’s where we’re at with Web 3.0, but it’s an entire universe that’s being built out. This is the other thing you need to know about the cryptos that you’re in.

The Future of Crypto Assets in Family Law and Probate Cases

Some cryptos aren’t just currency, they’re a way of paying for the buildout, for smart loans, for making it possible to create these NFT spaces so you can buy a house online without dollars per se. Such a variety of actions and activities that are occurring in the buildout of this space, that it is both exciting and daunting to try to understand.

But I think we need to understand it. I think if you have a client that is in any kind of sophisticated or overly optimistic investment mode, or even just a simply optimistic investment mode, and has looked at this and thinks it’s got legs, you need to find out what your client wants to do.

If you’re the client, you need to tell your attorney, “I want half of that crypto,” or “I want this other thing,” and we’ve got to come up with solutions. What if the court has a mandate to divide the staked Ethereum equally in kind, and your client wants half of that staked Ethereum? We have got to figure out the solutions. We have got to figure out solutions that can be worked.

Right now. I’m going to again analogize this to restricted stock units and to stock options. Some companies, when they give stock options, they say that they cannot be transferred without some sort of taxable event. Other companies say, “Yeah, we’ll create a new account for the other person in the event of a divorce.” It all depends on the initial contract, and so much depends on the asset with which you are dealing.

Educating Yourself for the Crypto Asset Era

So, you must educate yourself. You must find out about this and I think we, as attorneys, need to start looking at this space and figuring out, especially in the family law and the probate areas, how to find it, especially how to find it if somebody’s actively trying to hide it. And once we find it, what we’re going to ask the court to do with it, and how are we going to analogize this asset class with other asset classes. Those are the big questions. This is exciting.

Legal Help with Digital Assets in a Family Law Case

I hope you’ve enjoyed this. I hope I haven’t bored you. And I hope that you find this interesting. Thank you.

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