Judge allows redactions on cryptocurrency disclosure in child support feud

An Ontario judge says a father may provide redacted disclosures of his cryptocurrency assets in a child support dispute.

Judge allows redactions on cryptocurrency disclosure in child support feud
Evan Thomas says a recent Superior Court decision will be helpful beyond the family law context.

An Ontario judge says a father may provide redacted disclosures of his cryptocurrency assets in a child support dispute.

The father and respondent told the court that there was “a substantial risk that production of information could lead to attacks and give third parties the ability to access and perhaps steal these assets,” according to the April 5 Superior Court of Justice decision, M.M.D. v. J.A.H., 2019 ONSC 2208. Justice Llana Nakonechny wrote that there was a greater risk of prejudice to the father if he were required to produce the unredacted records.

“I have no expert evidence on this issue. It is clearly a volatile, emerging, intangible source of wealth which the courts will have to grapple with more frequently in future,” wrote Nakonechny in the decision.

Evan Thomas, counsel at Osler, Hoskin & Harcourt LLP in Toronto, who was not involved in the case, says the decision will be of interest to family lawyers and commercial lawyers alike, given that there is so little case law in the area of cryptocurrency.

For example, he says, privacy around cryptocurrency holdings also came up in the context of a lawsuit involving creditors and Canadian company Quadriga. Thomas noted that there have been reports of cryptocurrency holders being attacked.

“Looking beyond simply family law matters, there are going to be issues of disclosure of information about cryptocurrency assets in potentially any kind of litigation. That information may end up being filed in court. Then what’s interesting is it can, absent a sealing order, become a matter of public record,” says Thomas. “The individual who had the cryptocurrency was concerned not just for his privacy but also his personal security if information about his cryptocurrency holdings was filed in court.”

The applicant and respondent are parents to 24-year-old university student “S.H.,” according to the decision.  The mother and applicant “has no income other than the $1,200 per month taxable child support she receives from the Respondent,” although she has used savings, upcoming inheritance and money from a friend and romantic partner to pay for legal expenses, living costs and S.H.’s education, summing to annual expenses of $72,822 per year, Nakonechny wrote. The respondent is the self-employed producer of videos for the deaf and hearing impaired, with minimal debt and yearly expenses of $383,649, including monthly child support payments for two other children of $2,500 and $2,100 each, said the decision.

However, the respondent’s earnings were disputed in the case, including his cryptocurrency assets. The child support case had stagnated since 2006, until the applicant learned in 2017 that the respondent was worth “millions of dollars,” said the decision.      

The respondent said his income was $225,000 in 2015, $249,000 in 2016 and $172,000 in 2017 (aside from a capital gain of about $2.8 million that year from “liquidating,”) the decision said. But the applicant said the gross earnings from the business were between $600,000 and $1,000,000, pointing to his yearly expenses, a Cirrus aircraft, $3 million in managed funds and cryptocurrency valued between $10 million and $18 million depending on the date. The value was $9,502,416 as at February 8, 2019, said the decision.

“She questions the Respondent’s failure to provide actual evidence of the value of this investment and seeks production of unredacted statements of the Respondent’s cryptocurrency holdings,” the decision said.

“The Respondent advises that he has or will produce the relevant documents available to him evidencing his bitcoin investments. However, he states that he does not have records of historical transactions and that evidence of the transactions themselves exist only at the time of exchange.  Bitcoin ‘accounts’ are not held by third parties like bank accounts and therefore, he says, the account documents listing transactions cannot be produced like traditional bank accounts.”

Aaron Grinhaus, principal at Grinhaus Law Firm in Toronto, says that the technology behind cryptocurrency is designed to be as transparent as possible, but things can get tricky if there are multiple cryptocurrencies involved or if the case requires records from exchanges. However, he says, there may be ways for a litigant to share their "public key" to reveal transaction details without revealing their "private key," which is akin to an ATM PIN. He also noted that unless an asset is cashed out, it can be difficult to pin the valuation due to fluctuations.

He said that there might not need to be new precedent in this area if courts are able to think of it like other financial assets like offshore accounts.

"Yes we don’t want to give his social insurance number and birth date and make that all public record," he says.  "But there is an obligation for disclosure in these kinds of cases and he has to meet those obligations."

 Nakonechny decided that it wouldn’t be appropriate to use the business income or cryptocurrency to impute the respondent’s income, but agreed that the respondent could pay more than what was reflected in the 2017 income of $172,514. Instead, Nakonechny used the 2016 income of $249,000, which would require monthly child support payments of $2,012, “pending trial when more information on his income will be available.” Nakonechny said in the decision that the respondent should pay in installments of $35,000 as a “loan” to be credited against whatever the trial judge orders the respondent to pay or the applicant to repay.

The parties will get income reports generated or reviewed by experts, the decision said.

Julie Layne, principal of boutique firm Layne Family Law who represented the applicant, declined to comment because the matter was still before the courts. Martha McCarthy and Maureen Edwards, who represented the respondent, did not respond to a request for comment.

Thomas says that the courts were perceptive to the privacy concerns around cryptocurrency in this case, but that expert evidence can help judges understand how cryptocurrency is different than other financial assets when it comes to security.

“There are definitely a different set of privacy issues related to cryptocurrency,” says Thomas. “Cryptocurrency transactions are in general, transacted on public ledgers. Which is to say that I can go get a copy of the bitcoin blockchain, and if I know that you control a particular address, I can trace transactions from that address to a different address, and so on and so forth. Even if I had a snapshot of your bank statement today, i wouldn’t know your balance tomorrow or be able to track where your money went from there …. It’s potentially quite invasive into your financial privacy to disclose too much about your [cryptocurrency] holdings  because of this public ledger.”

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