In many divorce cases, one spouse may attempt to hide or “shield” certain assets from the other spouse. Under California Family Law, this action is viewed in the same light as an act of fraud and carries severe non-criminal penalties. Cryptocurrency, nonfungible tokens, and other digital assets make it easy for spouses to convert certain financial assets into digital assets that can be difficult to locate or trace back to the owner. Our California divorce law firm always recommends that our clients disclose all assets to avoid harsh penalties for breaching their fiduciary duty to the other spouse during a California divorce. Our firm also works hard to uncover any digital assets that could be hidden from our clients.

In California, the term “fiduciary duty” applies to business relationships and divorcing spouses.  Couples who are divorcing in the State of California also owe each other a fiduciary duty to fairly divide their family’s assets. In today’s new digital asset age, financial assets also include cryptocurrency, nonfungible tokens, and all other types of digital assets. Therefore, digital assets acquired during the marriage must be divided fairly or harsh legal penalties could be imposed on the spouse who breached their fiduciary duty to the other spouse during a California divorce.

What Does the Legal Term “Fiduciary Duty” Mean Under California Family Law

In the State of California, CACI No. 4100 “Fiduciary Duty” generally means that divorcing spouses are required, by law, to act in good faith with each other. In a California divorce case, each spouse is required to fully disclose all of their assets. California law states that when two people marry, they have formed a legal fiduciary relationship, and therefore, they have a legal obligation to act in good faith and may not take advantage of the other party’s interest without their consent or knowledge.

In other words, if one spouse fails to disclose any form of asset, including digital assets, that spouse has breached their fiduciary duty and the family court may imposed penalties.  California Family Code provides family courts with many options in which to penalize a breach of fiduciary duty in divorce cases. The severity of the penalty typically depends on whether the spouse unintentionally failed to disclose the asset or committed fraud.

Legal Remedies for “Breach of a Fiduciary Duty” in a California Divorce Case

According to California Family Code §1101(h), if one spouse fails to disclose an asset, the family court is permitted to award the “injured” spouse 100% of the undisclosed asset. In other words, if you failed to disclose the ownership of one Bitcoin during the divorce process, the Court may award the entire value of that Bitcoin to your spouse. Moreover, California Family Code §1101(g) gives California family courts another option in punishing the spouse who failed to disclose assets as required in a California divorce case. The Court is permitted to divide the hidden asset and require the spouse who failed to disclose the asset to pay all attorneys’ fees and court costs to their spouse.

An Example of “Breach of Fiduciary Duty” in a California Divorce Case That Involved Cryptocurrency

In the notable 2020 California appellate court case, Marriage of DeSouza (2020) 54 Cal. App. 5th 25, one spouse served their partner with a petition for dissolution of marriage. The divorce papers served to the spouse included an automatic temporary restraining order prohibiting the husband from moving, transferring, concealing, hypothecating, encumbering, or disposing of any assets without the prior written permission of his wife or court order with the exception of typical business transactions or for usual essentials of life.

After the husband received the petition, he initiated several cryptocurrency transactions. He filed his schedule of assets and disclosed the ownership of over 1,062 Bitcoins. However, the holding company was hacked, and Bitcoins were embezzled, causing the company holding the assets to file bankruptcy. The husband was aware of the bankruptcy and failed to recover his Bitcoin investment. In the divorce case, the wife asked for her half of the family’s community Bitcoins. However, the husband stated that the Bitcoins were tied up in the company’s bankruptcy, and therefore, he possessed actually possessed about 613 of the 1062 community Bitcoins.

The divorce court ordered the husband to transfer to his wife half of the Bitcoins in his possession. The Court also ordered the husband to explain why he shouldn’t be required to give his wife an additional 224.34 Bitcoins and pay his wife’s attorney’s fees and costs as prescribed under California Family Code. The Court did rule for the wife and, in its decision, stated that the husband breached his fiduciary duty to his wife, violated the automatic restraining order, and knowingly withheld information. The California 5th District Court of Appeal affirmed the prior Court’s ruling by rejecting the husband’s argument that the “information” withheld wasn’t material to the case therefore, he did not breach his fiduciary duty to his wife’s stake in their community estate.

The Court also stated that the husband perpetrated a series of violations concerning his fiduciary duties to his wife. As a consequence, the Court ordered the husband to:

  • Transfer half of the initially stated Bitcoins to his wife.
  • Transfer an additional 249 Bitcoins to his wife.
  • Pay his wife’s attorney’s fees and court costs.
  • Transfer cash to his wife.

When it comes to the fiduciary duty of divorcing spouses and digital assets such as cryptocurrency and nonfungible tokens, the spouses are required by law to disclose all digital currency and how they can convert these digital assets into cash. Our California Divorce Attorneys also recommend dividing the cryptocurrency and other digital assets fairly. In most cases, our clients should meet with a financial planner experienced with cryptocurrency, nonfungible tokens, and other digital assets before and after the divorce to make sure their financial interests are protected.

Contact Our San Jose Divorce Lawyer at 408-292-6289

Call Gemma V. Reyes, Attorney at Law, in Santa Clara at 408-292-6289 or contact us by e-mail now to schedule an appointment. You will discuss your case with a divorce attorney who can offer you the personalized solutions you need.