Is Cryptocurrency Considered Matrimonial Property?
As the interest in cryptocurrency investments continues to grow, a key question for separating or divorcing Canadians has been whether they must disclose and include their cryptocurrency when dividing matrimonial property.
This question was recently before the courts in the family law context. In the BC Supreme Court case of M.W. v N.L.M.W., 2021 BCSC 1273, the Respondent held various investment accounts with cryptocurrency exchanges. The issue was the Respondent’s lack of fulsome disclosure regarding these crypto assets as the Respondent had only disclosed one account in his financial statement. The cryptocurrency assets were found to be family property and in this decision, Justice Veenstra stated that the Respondent’s non-disclosure of his cryptocurrency assets was “particularly egregious”. The Respondent in this case held the position that all investments in cryptocurrency were lost, and given the evidence, the justice agreed that there may have been some losses but attributed $60,000 to the cryptocurrency assets due to the lack of fulsome disclosure.
This aligns with the position of the Supreme Court of Canada in Michel v Graydon where the Court stated that the non-disclosure of assets is stated as “cancer” of “Matrimonial Litigation”. In many cases, we see judges making an adverse inference when one of the parties does not fully disclose their assets. This means that the judge can assume that the non-disclosure is simply a strategy to hide assets, in which case the judge will assume that those assets are available and attribute those assets to the spouse who is failing to disclose.
The division of matrimonial property/family property is an exercise of discretion by the presiding judge and this includes crypto. In the Court of Appeal case of Nissen v Nissen, 2020 ABCA 8 the Respondent, through his professional corporation, lost $21,000 in a cryptocurrency investment which was not disclosed. The appellant argued that this was dissipation of family property. However, the trial judge decided that the Respondent’s failure to disclose the cryptocurrency investments and subsequent loss was not dissipation of corporate assets or family assets because it was not unusual for the parties in that case to make large investments without any discussion. Also, another likely factor in the decision was that the Appellant had also failed to disclose an investment in a real estate property.
Ultimately, cryptocurrency accumulated during the relationship will generally be found to be matrimonial property however, cryptocurrency that is a gift from a third party, inheritance or that existed before cohabitation can be considered excluded. The increase in value of excluded matrimonial property, from the time it is received, can be equitably divided between the separating spouses. Also, a failure to disclose crypto or any other asset can lead to the court making an adverse inference, leading to an assumption that the asset should be accounted for in the ultimate division of matrimonial property.
As the number of Canadians who invest in cryptocurrency increases, so does family law litigation that will involve the division of such assets. In addition, there may be a day when block chain technology will make it much easier to account for family property in the event of divorce. Until then, the lawyers at Crossroads Law have extensive experience in dividing matrimonial property, including cryptocurrency and corporate assets. Contact us now for your free consultation.