When a couple divorces, how are the crypto assets held by one party divided?

In fact, the question of dividing crypto assets held by one party is not new. Some scholars had already raised this issue as early as around 2010, when Bitcoin prices began to rise. However, to this day, this question remains unanswered. This is primarily because the division of crypto assets remains a rare practice in Chinese judicial cases. Even if one party claims in litigation that the other party holds crypto assets of significant economic value, courts often refuse to handle the case, citing reasons such as the inability to value the assets or the prohibition of their circulation by the state, given the practical challenges of enforcement. Today, the Sister Sa team will discuss this issue from both sides' perspectives, drawing on their judicial experience. 01 Are Cryptoassets Divisible Marital Property? Many people have misunderstandings about cryptoassets, primarily due to the negative assessment of cryptoassets in the 2021 Notice on Further Preventing and Addressing the Risks of Virtual Currency Trading and Speculation, issued by ten Chinese ministries and commissions. However, the property value of cryptoassets has long been widely recognized in my country's judicial practice (see Criminal Trial Reference Case No. 1569, Reasoning for Judgment: Although Virtual Currency (Cryptocurrency) Does Not Have Legal Tender Status, It Has Property Attributes Under the Criminal Law). Therefore, while cryptoassets (especially cryptocurrencies) cannot currently be considered legal tender from a legal perspective, this does not prevent them from being treated as a special type of virtual property. From a marital and family perspective, the Sister Sa team believes that it can become marital community property and should be divided during divorce. According to Article 1062, Paragraph 1 of the Civil Code, "common marital property" refers to income derived from production, business operations, and investments during the marriage. Furthermore, Articles 25, Paragraph 1, and 26 of the Interpretation (I) of the Marriage and Family Section of the Civil Code further clarify that income derived from one spouse's investments is considered marital community property, and income from one spouse's post-marital personal property, excluding interest and natural appreciation, should be recognized as marital community property. As can be seen from the above, crypto assets acquired by one spouse during the marriage should be considered marital community property and should be divisible during divorce.

02 Difficulties in Judicial Practice of Crypto Asset Division

(1) Difficulty in Proving the Other Party Holds Crypto Assets

Crypto assets themselves have a certain degree of anonymity. Currently, the common USDT, USDC, BTC, and ETH are either stored in online hot wallets of major exchanges or in cold wallets held by the individual. At the same time, crypto assets also have technical features such as anonymity (public keys do not reveal the identity of the holder) and point-to-point global instantaneous transactions.

Therefore, it is not easy for ordinary residents to prove: (1) that someone holds a specific crypto asset wallet/account; (2) that the crypto assets in a specific crypto asset wallet/account belong to someone. Even in criminal cases, proving that "someone holds crypto assets" is not simple. Professional investigative agencies often need the cooperation of the suspect and the analysis of massive amounts of transaction data (such as financial analysis) to prove this fact and establish a causal relationship between the suspect and the criminal behavior. Therefore, during the process of property division in a divorce, if one party is only generally aware that the other party holds a large amount of crypto assets, there is no way to request judicial division. (2) Difficulty in Valuing Crypto Assets There are many types of crypto assets, and the pricing methods vary. For stablecoins like USDT and USDC, pricing is relatively straightforward. The assets they're anchored to are, in most cases, foreign fiat currencies or specific assets with stable value and minimal volatility. For example, USDT is exchanged one-to-one with the US dollar, so its value during property division can be determined directly using the US dollar exchange rate. For market-cap coins like BTC and ETH, pricing is more complex. These cryptoassets primarily suffer from significant market volatility, and some have small market caps and are prone to illiquidity, making pricing difficult. However, for highly recognized coins like BTC and ETH, their relatively transparent "public prices" can be used as a reference. For specialized cryptoassets like NFTs, DeFi, GameFi, and XFi, the decision depends on the specific circumstances, and there is limited global judicial practice. (3) Difficulty in Enforcement It should be noted that the original intention of the creators of blockchain was to establish a financial system that relies on trust in the technology to operate independently, with decentralization being its core feature. Crypto assets built on this foundation inherently bear the hallmarks of this technology, making them assets that rely heavily on the cooperation of holders to operate. Therefore, if the holder refuses to cooperate with enforcement, enforcement can be quite difficult in practice. In practice, Chinese judicial organs do not have the initiative to freeze, seize, or dispose of crypto assets. They cannot directly require overseas crypto asset trading platforms or public chains to freeze a specific account or the crypto assets within it, as they can require a bank to freeze the account of a person subject to enforcement. They cannot even require overseas crypto asset trading platforms to directly transfer the frozen crypto assets. Furthermore, Chinese courts have yet to establish a set of methods and channels for communicating with overseas crypto asset trading platforms. Many enforcement judges are completely in the dark about how to enforce crypto assets, making enforcement of crypto assets even more difficult. 03 Practical Application of Spouse Crypto Asset Division (I) How to Successfully Achieve Division under my country's Existing Legal Framework At present, if crypto assets are to be divided effectively and legally guaranteed, it can only be done through a clear divorce agreement. According to the divorce case of He and Feng (2021) Jing 0102 Min Chu 35486, decided by the People's Court of Xicheng District, Beijing, He and Feng signed a divorce agreement on June 13, 2008, and clearly stipulated in the agreement that the current valuation of digital currency is 2.4 million. Each party received half. Considering the significant asset fluctuations, He was not suitable to hold the assets, as liquidation would be difficult. Feng promised to pay He RMB 1.2 million. When the situation improved, he would return the outstanding amount to He, with a repayment period of up to three years, after which the full amount of RMB 1.2 million would be repaid. The price increase had nothing to do with He. Subsequently, the parties took the case to court over a dispute regarding the implementation of the divorce agreement. The Beijing Xicheng District People's Court held that the parties' final property distribution agreement, dated June 13, 2008, stipulated the current value, distribution amount, and payment schedule of the digital currency within the marital property. This agreement represented the true intentions of both parties and did not violate any prohibitive provisions of laws and regulations. Therefore, the agreement was equally binding on both parties, and both parties must consciously fulfill the obligations set forth in the divorce agreement. The final judgment ordered Feng to pay He RMB 1.2 million. In summary, we can conclude that if a couple really wants to divide crypto assets, they must do so through a clear divorce agreement, based on mutual agreement, to achieve the following: (1) the valuation of crypto assets in RMB; (2) a clear stipulation that one party shall “buy back” the couple’s joint crypto asset share in RMB; (3) a clear stipulation on the payment time. At the same time, the Sister Sa team also suggested that, if possible, the party holding the crypto assets should be required to disclose the crypto assets they hold, including wallet addresses, types of crypto assets, etc., in order to ensure fair distribution.

(2) How to prevent one party from requesting the division of the crypto assets held by the other party

In principle, according to the provisions of my country's joint property system for husband and wife, upon divorce, the joint property of the husband and wife should be divided according to law, and one party of the husband and wife should not evade distribution in any improper way. Article 1092 of the Civil Code clearly states: "If, upon divorce, one spouse conceals, transfers, sells off, destroys, or squanders common marital property, or fabricates common marital debts in an attempt to appropriate the other spouse's property, the spouse who concealed, transferred, sold off, destroyed, or fabricated common marital property may be given less or no share of the common marital property during the division of the common marital property. After the divorce, if the other spouse discovers such conduct, they may file a lawsuit with the People's Court to request a redivision of the common marital property." However, in practice, for various reasons, one spouse may genuinely be unwilling to divide their crypto assets. Family matters are difficult for judges to judge, and the Sister Sa team does not comment. In practice, if the parties do not disclose and clearly divide their crypto assets in the divorce agreement, and one spouse cannot prove the other spouse holds crypto assets during the lawsuit, the court will generally not order a division, or may even simply dismiss the case. As mentioned earlier, although the on-chain data of crypto assets is public, proving that "someone holds a certain wallet" is indeed very difficult. Even if one spouse knows the other's public key and can see the amount of crypto assets in the account, unless the holder admits it, it is almost impossible to prove the ownership of the account and the crypto assets. In practice, even if it is proven that one party does hold a certain wallet and the crypto assets in the wallet, without strong means to freeze the wallet, the information between the two parties is extremely asymmetric. The holder can explain the loss of account funds by claiming "theft", "fraud", "investment failure", etc.

Final Note

With the expansion of the crypto-asset market and the expansion of its application scope, it is rapidly entering every corner of China's civil and commercial affairs. Subsequent matters such as the handling, distribution, and division of crypto-assets will become increasingly common in judicial practice. my country's judicial organs should establish a set of relevant handling systems as soon as possible to better protect the property safety of residents.