The division of assets is often a complex and contentious process. This is especially true when one party to the divorce wants to adjust investment strategies, such as the use of cryptocurrencies to broaden one’s portfolio.
Parties to a divorce may wonder if they can begin investing in cryptocurrency before they finalize the divorce. The answer will depend on various factors and may include application of the usual course of business rule. The Appellate Court of Connecticut recently addressed this issue and provides some guidance in Alina Leonova v. Stanislave Leonov.
What did the court find?
In this case, the parties to the divorce disagreed with the use of funds prior to the divorce. The parties asked the court to review whether investments in cryptocurrency were a violation of an automatic stay order. It is important to note that an automatic stay order is not meant to restrain an individual from conducting business. It is not a rigid tool set only to allow specific transactions. There is some flexibility in how the subject of the order can continue their business dealings, but an individual must move forward in a manner that maintains the status quo unless there is specific approval or permission from the other party.
Automatic orders also permit transactions concerning the disposition of securities under certain circumstances. This is relevant, as the federal government currently considers cryptocurrency a security for regulatory purposes. The court will generally allow such transactions if they fall within the usual course of investment decisions. The court will look to various factors to analyze the investment decision if it is challenged. These include whether the transaction preserved the estate of the parties or was made with a sense of urgency and the individual making the transaction did so with the good faith belief that a delay to discuss the strategy with the other party would have resulted in a financial loss to the estate.
The court found the defendant who used assets to invest in cryptocurrency did so without permission of the court or the plaintiff. The plaintiff also provided evidence that this investment was not an ordinary or customary investment made by either party prior to the divorce as they had never invested in cryptocurrency in the past. The defendant countered that these investments were part of the usual course of business. Leonova v. Leonov, 201 Conn.App 285 (2020).
The usual course of business is a question of fact that will turn on the circumstances of each case. The court’s analysis generally includes a review of whether the transaction at issue is one that was a continuation of prior activities before the dissolution action. CT Gen. Stat. sec. 25-5. Ultimately, the court stated this action was not a continuation of the status quo but a willful violation without good cause. As such, the court ordered the defendant to make the plaintiff whole in some manner for the violation of the automatic stay order. The court decided the best way to achieve this goal was to provide the plaintiff with funds through other means, such as a larger share of his annual bonus.
When are cryptocurrency investments allowed during divorce?
In general, the law does not bar these types of investment actions. They are often allowed in similar situations as long as they are in line with prior actions. Even if they are not, an individual may be able to move forward with the use of cryptocurrency as an investment strategy if approved by the other party or the court. This highlights the importance of reviewing actions during a divorce for compliance with applicable rules before moving forward with a different investment strategy, such as a new desire to diversify one’s portfolio with use of cryptocurrencies.
Since the answer depends on the details of the case, it is important to take questions about these matters to Connecticut family law counsel with experience in this niche area of law. Legal counsel with experience in complex asset division questions can advocate for a divorcing party that finds themselves trying to determine if cryptocurrency use was a violation of the automatic stay or in line with regular business dealings.
