Jeanne Browne

California’s First Big Crypto Divorce Case – DeSouza v. DeSouza

In a previous post, I gave you a simple introduction to a complex topic: cryptocurrency, and specifically, how cryptocurrency may be divided in a California divorce. In general terms, cryptocurrency is divided essentially the way any other digital asset such as gift cards, airline mileage, and downloaded media might be divided. However, because the value of crypto can fluctuate dramatically and frequently, and because this is a fairly new area, there is still a very small body of related case law upon which to draw, which means there are no hard and fast rules about how the court may choose to handle your case. 

In one notable California divorce between Erica and Francis deSouza, the question of how to divide the millions of dollars of value in crypto became pretty complicated. The deSouza case is widely considered the first “big” crypto divorce case, and it’s worth looking at. If you find yourself feeling overwhelmed by the details, just push through—I promise the ending is worth it! 

January 2013: Erica Is Granted a Temporary Restraining Order

When Erica filed for divorce in January 2013, she was also granted a temporary restraining order that prohibited Francis from “[t]ransferring, encumbering, hypothecating, concealing, or in any way disposing of any property, real or personal, whether community, quasi-community, or separate, without the written consent of the other party or an order of the court, except in the usual course of business or for the necessities of life.” In other words, Francis was required to obtain permission from Erica if he wanted to—among other things—buy or sell cryptocurrency or anything else. 

April 2013: Francis Violates the Restraining Order and Buys Bitcoin

Just three months later, over the course of less than a week in April 2013, Francis purchased bitcoin in three separate transactions through a Japanese bitcoin exchange called Mt. Gox (this detail becomes very important later on). As it turns out, he did so without notifying or obtaining agreement from Erica. 

Approximately $150,000 Spent on Three Bitcoin Purchases

First, Francis wired $45,000 to Mt. Gox to purchase bitcoins himself. Second, he had a friend named Wences Casares purchase $99,451 worth of bitcoin on his behalf and transfer it to his Mt. Gox account. Finally, he had another friend named Khaled Hassounah purchase $44,940 worth of bitcoin on his behalf, which he did, but the bitcoins were never transferred to Francis’s account and they remained with Mt. Gox. The bitcoins Francis purchased directly also remained with Mt. Gox. Only the bitcoins purchased on his behalf by Wences Casares were transferred from Mt. Gox to another digital wallet belonging to Francis. 

February 2014: Mt. Gox Fails

Mt. Gox filed for bankruptcy in February 2014, coincidentally the same month Francis filed his preliminary schedule of assets and debts in the divorce, in which Francis disclosed his ownership of the bitcoins purchased the previous year. Whether he knew about the Mt. Gox bankruptcy at that time is unclear, but it IS clear he knew about the bankruptcy by May 2014. 

September 2017: The Divorce is Settled

It was three years later when the divorce was finally settled. In September 2017, the court deemed the bitcoins community property to be divided equally between Erica and Francis. But it wasn’t until December when Erica sought her half of the bitcoins that Francis revealed that of the 1,062.21 bitcoins he had purchased, he had possession of only 613.53 of them, the rest having been lost in the Mt. Gox bankruptcy. This was also when he finally revealed to Erica and the court that he had used colleagues to make purchases on his behalf, that some bitcoins had been transferred from Mt. Gox to another digital wallet, and that some of the bitcoins had generated bitcoin cash and gold. 

December 2017: The $150,000 Investment is Now Worth $21 Million

At this point, in December 2017, the bitcoins Francis had purchased for approximately $150,000 were worth an astounding $21 million. Notably, the bitcoins purchased by Khaleed Hassounah for about $45,000 had a value of $8 million...but they were gone. 

As ordered by the court, Francis transferred Erica’s share of the bitcoins he had to Erica. But Erica sought post-judgment relief because she believed Francis had violated his restraining order and failed to meet his fiduciary responsibility to Erica with regard to his bitcoin investments. 

October 2018: Francis Pays Out More Than He Bargained For

In October 2018, the court issued its ruling. The court found that Francis had breached the restraining order on several occasions by failing to disclose his bitcoin purchases and transfers and by having colleagues make purchases on his behalf. In fact, not only had he not disclosed the involvement of his proxies, but the court determined he had purposefully hidden this information from Erica until 2018. Francis also had breached his fiduciary responsibility to Erica by failing to inform Erica of the Mt. Gox bankruptcy as well as by failing to disclose the additional crypto cash and gold generated by his initial investments. 

As a result, Francis was ordered to give Erica an additional $22,500 in cash, 249.445 bitcoins and the corresponding bitcoin cash and gold, and pay her attorney’s fees and costs in bringing the post-judgment motion.  

It’s reasonable to infer that Francis was deliberately trying to hide assets from Erica after they had separated and trying to hide investments he hoped would appreciate in value and that he would not have to disclose to her. But by doing so, he ended up paying her far more than he would have if he had chosen to be transparent with her from the beginning. He violated the restraining order with his initial bitcoin purchases made without her permission, which was foolish enough. But he compounded his misdeeds over time by continuing to withhold information, even during the final stages of the divorce proceedings and settlement.  

The Bottom Line

California courts do not look kindly upon those who try to hide assets from their soon-to-be ex-spouses. Despite what many think, cryptocurrency is not completely untraceable. In fact, there are forensic experts who specialize in tracing and tracking down crypto transactions, and they are quite expensive. If Erica had hired one, Francis would have had to pay those expenses too! 

The lessons here are clear—follow court orders, never try to hide assets from your spouse, and if you do make a mistake or a bad move, don’t make matters worse with a string of lies and obfuscations. Such a strategy is likely to catch up with you in a California divorce court. 

My recommendation is that whenever possible, keep the lines of communication open with your spouse and if you both are open to using mediation or a collaborative divorce process, do so. Every marriage that ends does so with a lot of complex feelings and emotions, and the way people often deal with those is by fighting about assets and property—and worse, about the kids. If you and your partner are willing to try to communicate, keep things civil, and work toward win-win outcomes, mediation and collaborative divorce are processes that can be quicker, less expensive, and more cathartic and productive than a courtroom battle. 

Explore your no-court divorce options and the prenuptial process in Santa Rosa and Sonoma County and schedule a confidential consultation with divorce lawyer Jeanne Browne. With more than 30 years of experience helping couples divorce without court through mediation and collaborative practice, she will give you compassionate legal advice on your issues related to family law, divorce, and prenuptial/postnuptial agreements. Click here to schedule a meeting.  

Please Note: Articles posted on this website are for general information purposes only and are not to be considered legal advice. Every situation is unique and we recommend you reach out for a private conversation about your specific circumstances and concerns by booking a consultation. 

by Jeanne Browne

Creating Joyful Holiday Memories and Traditions for Kids After Parents Separate

When mom and dad are separated and living in different homes during the holidays, keeping things running smoothly for the children is challenging–but certainly possible! It’s worth putting in the extra effort to put aside any differences and bad feelings with your ex to ensure that you create joyful experiences and happy memories for your little ones during the holiday season. Here are some great tips for putting maximum happy into the holidays for you and your children.

Recitals, School Events, and Other Social and Family Gatherings

This time of year often has more events and celebrations where both you and your ex will be in the same room. You may feel some anxiety about that, and it’s natural. If your separation or divorce is relatively recent, you may even still be dealing with some negative feelings like anger and resentment toward your ex. Again, this is natural–but it’s critical that you learn to put those emotions to the side while you support your children. Kids of all ages need to know their parents’ love for them is bigger than their discomfort with the situation. Remember, your children are dealing with a lot of tough emotions too, so anything you can do to give them a pleasant and conflict-free holiday season is an act of selflessness that they will appreciate now and down the road. 

Whenever possible, it’s a good idea to communicate at an age-appropriate level with your children and ask them what they want. If you and your ex will be attending your children’s band or theater performances, ask what their preferences are and accommodate them if possible. For example, some kids want their parents to sit together. Others want them to sit apart, but on the same side so they can see them both at the same time. Others might want parents to come to different showings, practices, or rehearsals, while some kids don't care one way or the other. Ask them. Be clear that you want to know what would make them most comfortable, but also be clear that you as parents will make the final decision.

Another good tip for parents attending performances year round is to promise your kids you won’t embarrass them! Have the kids make a list of things that would make them uncomfortable. You might be surprised to hear that standing up and clapping when no one else is, cheering loudly or shouting their name, waving, whistling, or asking for way too many pictures before or after the performance make them feel embarrassed. Your kids may also worry that you and your ex will fight or argue at the event, but they may not be able to express that. Always be reassuring about the fact that you are there to support them and you’ll do everything possible to make sure they have a good experience.

When it comes to parties, family gatherings, church socials, and other holiday events, you and your ex should engage in open communication about what would be best for your children. If you’re not comfortable being in the same room together yet, be honest about it. Then get creative. Perhaps you can attend the same event but at different times, one earlier and one later. Maybe you can split up the events so there’s a parent at each one. Be upfront with your kids about which events you’ll each be attending, but don’t overshare–children don’t need all the details and reasons their parents make the decisions they do. It’s a fine line and you’ll learn as you go–just take care never to speak ill of their other parent or make your discomfort your kids’ problem to worry about.

Be Flexible with Family Traditions

Treasured holiday traditions need more flexibility now. If you’re able to continue with specific traditions when the kiddos are at your place, that’s fantastic, but remember they may be struggling with bittersweet feelings that are difficult to articulate and deal with. Be sensitive to the fact that even though you’re making sugar cookies as a family like you always have, the whole family isn’t together, and that hurts. Check in with them and ask how they feel about continuing traditions that previously involved the whole family unit and be willing to make adjustments. Perhaps you can take an old family tradition and put a new spin on it. If you always baked and decorated sugar cookies together, maybe this year you can make gingerbread cookies instead. Or make the sugar cookies as usual but deliver some to the police station or elderly neighbors. 

You won’t necessarily have your children with you on specific days tied to specific traditions, so be willing to be creative with the calendar. Maybe you won't be able to watch the Christmas parade on December 25 or the New Year’s Day parade on January 1, but you can record them and watch them together another day. Again, communication is key. If they watched the parade with their other parent already, ask if they want to watch it again or if they’d rather figure out something else fun to do. 

You might feel disappointed about losing some of your treasured traditions to the other parent, but don’t make your kids feel bad or guilty. It’s okay to tell them how you feel. For example, you might say something like, “I watched the parade and even though I wish we could have seen it together, I knew you were watching it at your dad’s place and that made me happy. I bet you really liked the huge Paw Patrol float, didn’t you?” In this way, you’re being honest about missing them while still staying positive and connected.

Don’t make assumptions about which traditions your children may want to keep versus modify or surrender completely. Talk to them. Ask them what they want. The conversations might be a little difficult, but they’re important. Even if they have a hard time expressing their feelings, you should trust they will appreciate knowing their opinions matter to you.

This Is the Ideal Time to Start New Traditions

Now that the family unit at your place is “new,” this is the perfect time to start some fresh new ways of celebrating that won’t have any of the melancholy that might be attached to your old established traditions. Let the kids help with coming up with new ideas by looking for holiday events online or in the newspaper. There are probably tree lightings, craft fairs, Santa visits, and holiday plays and concerts in your area you’ve never attended before. Now is a great time to explore some of them! 

While you’re brainstorming together about new holiday rituals, thinking of ways to incorporate service will help all of you get your minds off your own troubles as you bring joy to others. Take handmade cards to convalescent hospitals or senior centers. Participate in a Toys for Tots drive and let them take the toys to the fire station and meet the firefighters there. The possibilities are endless. If you or your kids have social media accounts, you might enjoy taking pictures to post online to encourage others to experience the joy of generosity and service. 

The Bottom Line

Celebrating the holidays after a separation or divorce is fraught with challenges but also has the potential for creating wonderful new traditions and memories. Remember that while you’re dealing with lots of complex emotions, your kids are too, and they might not be able or ready to talk about them. Communication is key–between you and your children and between you and your ex. Do what you can to create positive experiences that will result in lasting memories of love, celebration, and giving so that the holiday season continues to be one you and your family look forward to.

by Jeanne Browne