How Are Crypto Assets Divided in a Divorce?

Guide to the Division of Crypto Assets in Divorce Proceedings

Introduction

In traditional divorce cases, the division of property is akin to an open-hand game—real estate, bank deposits, and stocks are all traceable. However, when crypto assets enter into a marriage, the rules suddenly become ambiguous.

“During the marriage, the other party accumulated a substantial amount of crypto assets of significant value. Yet in court, the other party flatly denied this and refused to disclose them. With no evidence available, one could only watch helplessly as those crypto assets, which might have constituted marital community property, were openly withheld by the other party...”

Such cases are increasingly appearing in courts around the world. As crypto assets become more widespread, the division of property in divorce proceedings faces new challenges. Their anonymity and lack of traceability render the boundaries of “community property” more ambiguous than ever before.

 

Legal Definition: Crypto Assets in Marriage

First, pursuant to the Notice on Preventing Bitcoin Risks issued by the People’s Bank of China and other ministries and commissions in 2013, and the Notice on Further Preventing and Disposing of the Risks of Speculation in Virtual Currency Transactions issued in 2021, it is evident thatcrypto assets and other “virtual currencies” are not recognized as legal tender and do not possess monetary attributes such as legal compulsion and mandatory acceptability.

However, the aforementioned Notices explicitly define them as“virtual commodities,”which means that although crypto assets are not “money,” they constitute proprietary interests, and their nature as virtual commoditiesattributesshall be protected by law. Holders of crypto assets enjoy exclusive rights to manage and trade specific virtual assets; therefore, such assets are similar in nature to virtual commodities and possess property attributes.

Secondly, the primary legal prerequisite for dividing any property within a marital relationship is to confirm it asmarital community property, and crypto assets are no exception.

The relevant statutory interpretations regarding marital community property are as follows:

• Article 1062 of the Civil Code provides that income derived from production, business operations, and investments obtained by spouses duringthe subsistence of the marital relationshipshall constitute marital community property.

• Article 25, Paragraph 1, and Article 26 of the Interpretation (I) of the Supreme People's Court on the Application of the Marriage and Family Section of the Civil Code of the People's Republic of China further clarify thatincome obtained by one spouse from investments during the subsistence of the marriage, as well as income generated from personal property after marriage,shall all be recognized as marital community property.

As evident from the aforementioned provisions, regardless of whether the crypto assets were jointly invested by both spouses or derived from the business operations of one spouse, so long as they were generated duringwithin the marital relationship, its legal nature may be characterized as community property, thereby permitting division upon divorce.

 

Judicial Practice: How Practical Difficulties Affect Judgments

Although the principle that crypto assets are subject to division has been established at the statutory level, their decentralized and anonymous characteristics make it exceptionally easy for one party to conceal assets in divorce proceedings, constituting a core challenge in property division.

(1) Difficulty in Meeting the Burden of Proof

Theanonymityof crypto assets makes it difficult for the party seeking division to prove the existence of such assets. If key evidence such as wallet addresses or transaction records cannot be provided, the court will be unable to ascertain the existence of the assets and will therefore dismiss the claim on the grounds of"insufficient evidence"The request is rejected.

Relevant cases corroborate this point. In a dispute involving compensation related to crypto assets (1), because the platform involved was no longer operational and neither party provided transfer or transaction records of the crypto assets within the prescribed period, the status of the assets could not be ascertained. Accordingly, the court found that one party had failed to meet its burden of proof and did not support its appeal.

(2) Difficulty in Valuation

Due to the significant price volatility of crypto assets, therebylacking a unified valuation standardIf the spouses fail to return or quantify and divide the crypto assets within the agreed timeframe, the court will find it difficult to determine the valuation outcome and applicable standards with certainty.

Even if one spouse can prove the existence of the assets, whether the parties have agreed on the value of the crypto assets, and the manner of such agreement, will significantly affect the court’s final ruling. The following are two common scenarios:

1. No agreement or inability to reach an agreement through negotiation

Where the spouses fail to reach an agreement on the division of crypto assets, due to the unique characteristics of such assets in terms of legal characterization, valuation, and enforcement, courts generally tend to refrain from addressing the issue or to deny support for related claims.

This judicial stance was reflected in the case of Liu v. Lei and Geng (Dispute over House Sales Contract) (2). Liu claimed that virtual currencies were used to pay the majority of the house purchase price. However, the court did not recognize this portion of the payment because Liu failed to prove that the parties had reached a mutual agreement thereon, and further noted that transactions involving virtual currencies are not protected by law.

2. Clear agreement in place

Where the spouses have reached a consensus on the treatment of crypto assets and documented such agreement in writing, courts generally uphold and respect the parties’ private settlement. This is premised on the clarity and definiteness of the agreement. The following two cases illustrate this point from both positive and negative perspectives:

• Case 1 (3): The parties explicitly stipulated in their divorce agreement the amount of the discounted value of the digital currencies and the time for payment. The court held the agreement valid and supported the plaintiff’s claim.

• Case 2 (4): Although the parties executed a loan agreement stipulating a loan in RMB, the actual disbursement was made in crypto assets, without specifying the conversion rate between the crypto assets and RMB. The court held the contract invalid and dismissed the claim for repayment.

The key distinction between the two cases lies in whether the parties establishedA clear chain of value conversionIt follows that, in judicial practice, if the parties have reached a clear and reasonable written agreement on the valuation and disposition of crypto assetsreach clear and reasonable written agreements, the court may recognize such an agreement; conversely, if the parties fail to reach an agreement, given the absence of a uniform valuation standard for crypto assets and the lack of widespread recognition of their legality, courts tend torefrain from addressing the matter or assigning a valuation。

(III) Difficulties in Enforcement

Crypto assets present unique challenges at the enforcement stage: courts cannot directly control private keys in the same manner as freezing traditional bank accounts. Even where a judgment supports the division of property, if the holding party refuses to surrender the private key or claims that the “key has been lost,” judicial authorities alsolack effective coercive measures, rendering the judgment difficult to enforce.

The enforcement proceedings in the contract dispute between Lu Mou and Lu Mou (5) exemplify this dilemma: the judgment expressly required Lu Mou to deliver 60 units of a certain cryptocurrency to Lu Mou, or to make a discounted payment of RMB 4.83 million. However, upon entering the enforcement phase, the court found that, apart from bank deposits totaling slightly over RMB 22,000, the judgment debtor had no other assets available for enforcement. Ultimately, the court was only able to garnish this small deposit and, due to“the absence of assets available for enforcement”, issued a ruling to terminate the current enforcement proceedings.

 

Mankun Recommendations: What Should Ordinary Individuals Do?

In light of the numerous challenges associated with crypto assets in terms of evidence production, valuation, and enforcement, the following approaches may be adopted to facilitate property division and enhance its security.

• Preserve Evidence in Advance:

Given the anonymity and ease of transfer inherent in crypto assets, evidence preservation is particularly critical.It is advisable to systematically identify and preserve relevant crypto-asset information during the subsistence of the marital relationship,including core information such as wallet addresses, private keys, and transaction records. Where necessary, professional institutions may be engaged to conduct a preliminary appraisal of asset value. Physical devices such as cold wallets should also be secured to establish a complete chain of evidence, thereby laying the foundation for subsequent assertion of rights or enforcement proceedings.

• Execute a Written Agreement:

It is recommended that spouses execute a written agreement in advance to clearly stipulate the method for determining the value of crypto assets and the specific division plan.The agreement should include specific clauses regarding the method of division, such as division in kind or compensation based on discounted value, ensure a clear and consistent conversion mechanism between crypto assets and fiat currency, and provide corresponding safeguards for performance. Given the frequent fluctuations in the market value of crypto assets, a well-drafted agreement can help avoid situations where courts decline to address crypto assets due to non-recognition of their legality.

• Delineate Property Boundaries:

For assets clearly designated as personal property,it is advisable to manage them separately through methods such as independent wallets to avoid commingling with marital community property.Establishing clear asset boundaries not only safeguards individual property rights but also effectively defines the scope of division in the event of a dispute, thereby avoiding unnecessary conflicts.

• Seek Legal Assistance:

Cases involving crypto assets are characterized by both technical specialization and legal complexity;it is advisable to timely consult professional lawyers with relevant experience in areas such as agreement drafting, asset identification, and dispute resolutionto systematically address potential risks and enhance the feasibility of enforcing rights.

 

Conclusion

In the division of marital property, the identification and handling of crypto assets have emerged as novel challenges.

Although some courts have recognized the property attributes of crypto assets as "virtual commodities," their anonymous nature, price volatility, and difficulties in enforcement continue to pose significant challenges to case handling.

Therefore, during the subsistence of the marital relationship, the orderly management and written agreement of assets, including crypto assets, are key to reducing disputes. If the parties find it difficult to reach an agreement on their own, it is recommended to seek consultation and assistance promptly, obtaining legal support at the negotiation stage. Rational negotiation and respect for rules often preserve dignity and mutual respect more effectively than litigation.