Many people hear the term “fiduciary duty” and think it only applies to business relationships. In fact, divorcing spouses owe a fiduciary duty to each other. This means they must deal with each other fairly in the division of their assets, even when the assets include cryptocurrency.
The Meaning of “Fiduciary Duty” in a Divorce
The law imposes a strict fiduciary responsibility upon divorcing spouses and requires them to follow the highest standard of good faith and fair dealing with each other the same as if they were in a business partnership. This means full disclosure of all assets.
When one party breaches that fiduciary duty by failing to disclose assets, the California Family Code gives the court several possible penalty options. The seriousness of the penalty depends on whether the failure to disclose was intentional or negligent, or whether it involved any fraud. This responsibility includes disclosing any investments in cryptocurrency.
Possible Legal Remedies for Breach of a Fiduciary Duty
Two examples of possible legal remedies/penalties the family law court may impose on spouses who breach their fiduciary duty to the other one during the divorce include:
- Divide the asset that was hidden and require the party who failed to disclose it to pay the attorneys’ fees and costs to the party who was injured due to the disclosure failure. Family Code §1101(g)
- Award 100 percent of the asset to the damaged spouse. Family Code §1101(h)
Cryptocurrency Breach of Fiduciary Duty During a Divorce: Marriage of DeSouza (2020) 54 Cal.App.5th 25
After the final order in a divorce case between Erica and Francis Desouza, Erica discovered Francis had withheld critical information about their investments in cryptocurrency and the purchase of Bitcoins. She sued Francis for the half of the Bitcoins that were community property and that were rightfully hers. The court found in favor of Erica, stating that Francis committed a series of transgressions surrounding his fiduciary duties. As a result, the Court ordered Francis to:
- Transfer cash to Erica.
- Transfer half of the original Bitcoins to Erica along with an additional 249.445 Bitcoins.
- Transfer to her Bitcoin gold and Bitcoin cash.
- Pay Erica’s court fees.
Francis appealed and the Court of Appeals affirmed the trial court’s orders.
Collaborative Divorce and Cryptocurrency
In a Collaborative Divorce, there is a financial neutral whose role is to educate the spouse who may be less savvy about the couple’s financial situation. When it comes to Bitcoins, this includes:
- Informing the person that this is a digital currency and explaining how blockchain technology works.
- Explaining that digital currencies, like Bitcoins and Ethereum, can be converted to cash.
- Recommending they divide the cryptocurrency equally.
I recommend that both parties meet individually with a financial planner after the divorce is final. That planner can help the individual spouse plan on what to do next, whether to hold on to the digital currency or to liquidate it and put it into some other asset.