In fact, the issue of dividing cryptocurrency assets held by one party is not a new problem; it was raised by some scholars as early as around 2010 when Bitcoin prices began to rise.
However, to this day, there is still no clear answer to this question.
This is mainly because, in our country's judicial cases, there is still little practice regarding the division of cryptocurrency assets. Even if one party claims in litigation that the other party holds cryptocurrency assets of significant economic value, courts often refuse to handle the matter, citing reasons such as difficulty in valuation and national prohibitions on circulation.
Today, the Sa Jie team will discuss this issue from both parties' perspectives, combining judicial practice experience.
Many partners have misconceptions about cryptocurrency assets, mainly due to the negative evaluation of cryptocurrency assets in the "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation" issued by ten ministries in China in 2021.
However, in reality, the property value of cryptocurrency assets has long been widely recognized in our country's judicial practice (see the reasoning in Case No. 1569 of "Criminal Trial Reference": Although virtual currency (cryptocurrency) does not have the status of legal tender, it has property attributes in the sense of criminal law).
Therefore, although cryptocurrency assets (especially cryptocurrencies) cannot currently be regarded as legal currency from a legal perspective, it does not prevent them from being treated as a special type of virtual property.
From the perspective of marriage and family affairs, the Sa Jie team believes that they can become marital property and should be divided during divorce.
According to the provisions of Article 1062, Paragraph 1 of the Civil Code, the so-called "marital property" refers to the income obtained from production, operation, and investment during the duration of the marriage. Additionally, Article 25, Paragraph 1, and Article 26 of the Interpretation (I) of the Marriage and Family Compilation of the Civil Code further clarify that the income obtained from investments made by one spouse belongs to marital property, and the income from one spouse's personal property acquired after marriage, excluding fruits and natural appreciation, should be recognized as marital property.
As can be seen, cryptocurrency assets obtained by one spouse during the marriage should be considered marital property and can be divided during divorce.
Cryptocurrency assets inherently possess a certain degree of anonymity. Common assets like USDT, USDC, or BTC, ETH are either stored in online hot wallets of major exchanges or in cold wallets physically held by individuals. At the same time, cryptocurrency assets also have technical characteristics such as anonymity (public keys do not reveal the holder's identity) and peer-to-peer global instant transactions.
Therefore, proving: (1) that a person holds a specific cryptocurrency wallet/account; (2) that the cryptocurrency assets in a specific wallet/account belong to a person is not easy for the average resident.
Even in criminal cases, proving "that a person holds cryptocurrency assets" is not simple. Professional investigative agencies often need the cooperation of the suspect and to sift through massive transaction data (such as forensic evidence) to prove this fact and establish a causal relationship between the suspect and the criminal behavior.
Thus, in the process of dividing property during divorce, if one party only has a general awareness that the other party holds a large amount of cryptocurrency assets, they cannot request judicial division.
There are many types of cryptocurrency assets, and their pricing methods vary.
For stablecoins like USDT and USDC, pricing is relatively simple, as the assets they are pegged to are mostly stable and have very low volatility against foreign legal tender or specific assets. Taking USDT as an example, it is exchanged at a one-to-one rate with the US dollar, so its value during property division can be directly determined by the USD exchange rate.
For market-cap cryptocurrencies like BTC and ETH, pricing becomes more complicated due to significant market volatility, and some smaller market-cap coins can easily lose liquidity, making it difficult to price them. Of course, for widely recognized coins like BTC and ETH, there are relatively transparent "market prices" that can be referenced.
For special cryptocurrency assets like NFTs, DeFi, GameFi, and XFi, it will depend on the specific situation, as there is little global judicial practice experience.
Partners should know that the original intention of blockchain creators was to establish a financial system that operates independently based on technological trust, with decentralization as its core technical feature. Cryptocurrency assets built on this foundation inherently carry this technological imprint, making them a type of property that heavily relies on the cooperation of the holder for operation.
Therefore, if the holder does not cooperate with enforcement, it is quite difficult in practice.
In practice, our judicial authorities do not have the initiative to freeze, seize, or dispose of cryptocurrency assets. They cannot directly request foreign cryptocurrency trading platforms or public chains to freeze a specific account and the cryptocurrency assets within it, as they would with a bank freezing a debtor's account, nor can they require foreign cryptocurrency trading platforms to directly transfer frozen cryptocurrency assets.
Moreover, our courts have not yet established a set of communication methods and channels with foreign cryptocurrency trading platforms, and many enforcement judges are at a loss regarding how to enforce cryptocurrency assets, making enforcement even more challenging.
Currently, if one wants to effectively and legally divide cryptocurrency assets, it can only be done through a clear divorce agreement.
According to the judgment of the Beijing Xicheng District People's Court in the divorce case (2021) Jing 0102 Minchu 35486 between He and Feng, He and Feng signed a divorce agreement on June 13, 2008, clearly stating in the agreement: the current valuation of digital currency is 2.4 million. Each party gets half, and considering the significant fluctuations in assets, it is not suitable for He to hold it, as it is difficult to liquidate. Feng promised to owe He 1.2 million yuan. When the situation improves, Feng will repay the debt owed to He, with a maximum repayment period of three years, and after three years, repay 1.2 million yuan. The appreciation and depreciation have nothing to do with He.
Subsequently, both parties sued the court due to disputes over the performance of the divorce agreement. The Beijing Xicheng District People's Court held that the last property distribution agreement between the parties on June 13, 2008, regarding the current value, distribution amount, and payment time of the digital currency in marital property constituted the true intention of both parties and did not violate any prohibitive legal regulations. Therefore, the agreement is equally binding on both parties, and both should consciously fulfill the obligations determined in the divorce agreement.
The final judgment: Feng shall pay He 1.2 million yuan.
In summary, we can conclude that if both spouses genuinely wish to divide cryptocurrency assets, it must be done through a clear divorce agreement, based on mutual agreement between both parties, achieving:
(1) Valuing the cryptocurrency assets in RMB;
(2) Clearly stipulating that one party should "repurchase" the marital share of cryptocurrency assets in RMB;
(3) Clearly stipulating the payment time.
At the same time, the Sa Jie team also suggests that if possible, the party holding the cryptocurrency assets should disclose their holdings, including wallet addresses, types of cryptocurrency assets, etc., to facilitate fair distribution.
In principle, according to the provisions of our country's marital property system, marital property should be divided according to law during divorce, and one party should not evade distribution in any improper manner. Article 1092 of the Civil Code clearly states: "At the time of divorce, if one party conceals, transfers, sells, damages, or squanders marital property, or forges marital debts in an attempt to occupy the other party's property, during the division of marital property, the party who conceals, transfers, sells, damages marital property, or forges debts may receive less or no share. After divorce, if the other party discovers such behavior, they may file a lawsuit with the People's Court to request a re-division of marital property."
However, in practice, for various reasons, one party may have legitimate reasons not to wish to divide their cryptocurrency assets. It is difficult for a fair judge to resolve family matters, and the Sa Jie team does not make evaluations. From a practical standpoint, if both parties have not disclosed and clearly divided cryptocurrency assets through a divorce agreement, one party cannot prove that the other party holds cryptocurrency assets during litigation, and the court will generally not rule on the division, or may even refuse to handle it directly.
As previously mentioned, although the data on the blockchain is public, proving "that a person holds a certain wallet" is indeed very difficult. Even if one spouse knows the other spouse's public key and can see the amount of cryptocurrency assets in the account, unless the holder admits it, it is almost impossible to prove the ownership of the account and the cryptocurrency assets.
In practice, even if it is proven that one party indeed holds a certain wallet and the cryptocurrency assets within it, without strong means to freeze that wallet, the information between the two parties is extremely unequal. The holder can explain the loss of funds in the account by claiming "theft," "fraud," or "investment failure."
As the cryptocurrency market expands and its application range broadens, it is rapidly entering various aspects of civil and commercial affairs in our country. Subsequently, the handling, distribution, and division of cryptocurrency assets will become increasingly common in judicial practice. Our judicial authorities should quickly establish a relevant processing system to better protect residents' property security.
Related: OKX fined $2.6 million by the Dutch central bank for operating without a license before MiCA implementation.
Original article: How are crypto assets divided in divorce?
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