Til crypto do us part: Dividing digital fortunes in divorce court

Over the last 20 years, cryptocurrency went from a niche commodity held by technophiles to a much more common investment asset owned by millions of retail investors. Like any asset, when a marriage dissolves, it needs to be handled properly. However, unlike other assets, the volatility of this asset makes "who gets what" no easy task.

What are digital assets and cryptocurrency

The Internal Revenue Code defines a "digital asset" as "any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology." 26 USC 6045(g)(3)(D). Cryptocurrency is a type of digital asset.

A "cryptographically secured distributed ledger" refers to technology where transactions are recorded ("ledger") and the information contained is protected using complex codes ("cryptographically secured") and kept across many different computers as opposed to one central computer or server ("distributed"). There are many of these ledgers, aka "blockchains," each designed with its own architecture, consensus mechanism and purpose, such as Bitcoin, Ethereum and Solana. A blockchain, as a ledger, reflects a record of transactions made using cryptocurrency.

Cryptocurrency holdings are frequently kept off the blockchain, in centralized exchanges (e.g., Coinbase). Centralized exchanges function similarly to online brokerage platforms, acting as an intermediary to facilitate the buying, selling and trading of cryptocurrencies and its conversion to and from "fiat" currencies such as the US dollar. Exchange rates are largely determined by trading activity on centralized exchanges.

Identification and characterization of cryptocurrency

"There is a general presumption that property acquired during marriage by either spouse other than by gift or inheritance is community property unless traceable to a separate property source." Marriage of Haines (1995) 33 Cal.App.4th 277, 289-290. Family Code §§770 and 771 states that separate property includes property owned before marriage, property acquired after marriage by gift, bequest, devise or descent, earnings and accumulations after date of separation, and property that can be traced to a separate property source. Notably, neither community property nor separate property lose their character by a mere change in form or identity. Marriage of Koester (1999) 73 Cal.App.4th 1032, 1037-1038.

Cryptocurrency is frequently acquired by using fiat currency to purchase it through centralized exchanges, and a review of a party's financial accounts may reflect transfers to a centralized exchange. It is critical to trace the source of fiat currency used to acquire cryptocurrency to ascertain the characterization of any cryptocurrency purchased.

Because blockchain addresses are generally pseudonymous, exchange records, including subscriber records and transaction histories, are often the primary means of linking digital assets to a specific individual. U.S.-based exchanges typically maintain "Know Your Customer" (KYC) information from users, including government-issued identification and other identifying details. However, many non-U.S. exchanges do not maintain KYC documentation and do not respond to, or comply with, U.S. civil legal process.

An individual's total cryptocurrency holdings generally consist of both on-chain and off-chain (exchange) assets, with funds often transferred between exchanges and external blockchain addresses, including in connection with fiat transactions. Even when assets move off-platform, the underlying cryptocurrency transactions are permanently recorded on the blockchain, allowing the movement of funds between addresses to be traced through blockchain analysis.

Valuation

Cryptocurrency and other digital assets are known to be highly volatile; for example, between March and October of 2025, the price of Bitcoin in U.S. dollar jumped over 35%. Between October 2025 and when we wrote this article, its price is down by almost 50%. Last year, the price of Bitcoin was as high as $126,000 per Bitcoin. This year, it has been as low as $64,000. This issue of volatility can be further heightened if there are allegations of mismanagement of digital asset holdings.

Family Code §2552 states that the court shall value assets and liabilities as near as practicable to the time of trial, except if the court for good cause shown decides to value all or any portion of assets and liabilities at a date after separation and before trial. As such, the date for valuation can have a significant effect on potential outcomes.

Division

Unless otherwise agreed to by the parties, the court is required to ensure an equal division of the community estate. Family Code §2550. The court has several methods available to it to divide assets. These include: (1) dividing assets in kind, (2) asset distribution or cash-out or (3) sale and division of proceeds. Marriage of Cream (1993) 13 Cap.App.4th 81, 88.

Cryptocurrency holdings can potentially be divided in kind to minimize the issues that can arise from fluctuating exchange rates between cryptocurrency and fiat currency. Conversely, in situations wherein a party prefers not to receive cryptocurrency, orders of a cash-out from cryptocurrency holdings may be sought.

Breaches of fiduciary duty claims

Spouses owe each other fiduciary duties with regard to transactions between themselves as well as the management and control of community property. Family Code §§721 and 1100. "This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other." Family Code §721. These fiduciary duties continue until the asset at issue has been distributed. Family Code §1100.

In Marriage of DeSouza (2020) 54 Cal.App.5th 25, the Court of Appeal affirmed the trial court's finding that a husband breached his fiduciary duties to his wife by failing to disclose material information about his cryptocurrency investments which impaired the wife's community interest.

Conclusion

Digital assets and cryptocurrencies are built on early-stage technologies that many are unfamiliar with. Nonetheless, many of the well-established family law concepts will apply to these relatively new types of assets. As these types of assets become more ubiquitous, it will be important to have a foundational understanding of digital assets and how they are handled as part of a divorce.