Husband’s $189,391 In Bitcoin Transactions, Made After Wife Filed Petition For Dissolution, Were A Breach Of His Fiduciary Duty And In Violation Of The ATROS.
In Marriage of DeSouza, Case No. A156311 (1st Dist., Div. 3 August 10, 2020) (unpublished), wife learned for the first time, after entry of the dissolution judgment, that husband had not been forthcoming about the three bitcoin transactions he began conducting three months after she served him with her petition for dissolution. Wife successfully moved for an emergency order compelling husband to immediately transfer her full interest in the community bitcoins to her. She additionally received dividend funds paid on the bitcoins in the form of cryptocurrency – along with attorney fees and costs incurred for bringing the post-judgment motion.
On appeal, husband argued that he did not breach his fiduciary duty as the information he withheld about his bitcoin transactions was not material and that there was no substantial evidence that his breach impaired wife’s interest in their community estate. The 1/3 DCA found no merit in husband’s arguments and affirmed – agreeing with the trial court’s findings that husband had breached his fiduciary duty to wife by committing a series of transgressions surrounding his purchase and handling of the bitcoins. First, he violated the automatic temporary restraining order (ATROS) served upon him with wife’s dissolution petition, which prohibited him from making unilateral decisions involving the community estate. Additionally, husband had concealed his bitcoin purchases and use of proxies in two of the purchases, concealed the fact that only a portion of the bitcoins he purchased had been transferred to his digital walled while the balance remained with the bitcoin exchange, and had failed to inform wife that the bitcoin exchange had filed bankruptcy – ultimately tying up a substantial portion of the bitcoins in bankruptcy. These were material facts that should have been disclosed to wife to allow her the ability to protect her interests in the bitcoins by objecting to a division in kind of the bitcoins and/or requesting that the trial court use its equitable powers to protect her from husband’s bitcoin transactions.
Interestingly, bitcoins husband had purchased for almost $45,000 – which were tied up in bankruptcy (and for which husband failed to file a bankruptcy claim for the funds – testifying “it wasn’t worth chasing [the bankrupt exchange] for little money”) had appreciated in value to around $8 million around the time wife learned of husband’s concealments.