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The Complexity of Cryptocurrency and Connecticut Divorce

August 18, 2022 General

You may have thought it was challenging to keep track of all your credit card statements in a divorce. Now cryptocurrencies are thrown in the mix. A divorce becomes even more sophisticated with digital currencies. Divorce attorneys must assess not only the 1) the ever-evolving digital asset buckets and how these currencies can fluctuate on any given moment, but also 2) the time in which the assets enter the marriage.

Cryptocurrencies are defined as digital currencies. Many cryptocurrencies can be found on blockchain networks, which can be public or private.  Cryptocurrencies can be mined or purchased from cryptocurrency exchanges.

 Similar to a stock, cryptocurrency may generate a profit or a loss. Cryptocurrencies, like stock, can suffer from price volatility. While cryptocurrency value can climb in the market, the prices can crash.

In a divorce, the court enforces Automatic Orders, which provide that neither party spend marital funds without the consent of the other party in writing or an order of judicial authority, except in the usual course of business. If you trade cryptocurrencies in the usual course of business, it may mean you are engaged in cryptocurrency trading prior to the divorce, and it is part of your regular profit-making method, so you may be able to continue doing so during the divorce. However, a well-found cryptocurrency portfolio in a divorce may subject you to situations not obtained in the usual course of business. Like stock or real estate property, automatic orders apply to cryptocurrency.

For example, in Leonova v. Leonov (2020), the Connecticut Appellate Court ordered that the Defendant-husband reimburse the Plaintiff-wife for half of the loss incurred from his cryptocurrency investment. Leonova v.Leonov, 201 Conn. App. 285, 295, 242 A.3d 713 (2020). Defendant’s investment in cryptocurrency was not in the usual course of business because he was not engaged in the practice of making cryptocurrency investments until the divorce proceedings. He invested $39,000 in cryptocurrencies and sold them for a $22,000 loss. The Appeals Court upheld a finding that the defendant was in contempt for violating the automatic orders. To resolve this violation, the trial court ordered the Defendant to pay the Plaintiff half of his 2018 bonus.

Because of the Automatic Orders, if you are planning on investing in cryptocurrency, do not consider investing if you have not already done so prior to the divorce proceeding.  Even if you frequently trade cryptocurrency, be cautious doing so during the divorce. If you plan on investing in cryptocurrency, consider maybe getting the other party’s consent in writing or get the court’s permission. Otherwise, wait until you are divorced.

As there are a myriad of divorce financial aspects to consider, our Attorneys at BPS can ensure that your financial matters are properly handled. If you have any questions about this topic, please contact our firm.