Help: My Husband Lost Our Money in Bitcoins!

What happens when spouses gamble community funds?

The recent Kamgar case (17 DJDAR 11672, 11/17/2017), published in November 2017, answered a question that  comes up in divorces “What if my spouse lost our money in the stock market, gambling, or, in the speculative investment “du jour” — cryptocurrency or bitcoin?”

In this groundbreaking case, the court looked at what the parties “agreement” (or in many instances, their marriage agreement) was.  In Kamgar, Moira had told her husband that he could risk a couple of million dollars trying his hand at investing in options, mainly Apple stock options.  When he lost that money and Moira tried to hold her husband responsible for that loss, the court told her, “You agreed to let him try this out, so you don’t get your money back.”

However, when Fred continued to invest their community property in these options over Moira’s objections and hid it from her, he was held liable for what he had lost.

To come to this decision, the court relied on the parties’ texts, back and forth, to sort out what their agreement had been.

Unbeknownst to Moira, in addition to the nearly $2.5 million initial sum that Fred had invested in the stock market, he had also unilaterally deposited an additional $8,188,605 of community funds into the investment account, and then saw those twin deposits (the initial $2.5 million and additional $8 million) both skyrocket and fall in recurring periods of gains and losses in options trading.

Over the course of these fluctuations, Fred withdrew $3,805,000 of the $8 million amount, and then eventually lost all but $409,492 of the total community funds deposited in the account. The net result was that of the additional, undisclosed $8,188,605 Fred risked in options trading, he lost more than half for a net loss to the community funds of $3,904,113.

In the end result, the trial court found that Fred breached his fiduciary duty to Moira and that Fred’s management of the parties’ investment portfolio was reckless and grossly negligent.  Ultimately, the trial court ordered Fred to pay Moira $1,952,056.50, which was half of the $3,904,113 loss incurred following his undisclosed decision to risk the $8,188,605 in community funds. The court says, “Simply and quite obviously, the parties’ disclosure obligations in a partnership, and in a marriage partnership under the Family Code’s incorporation of Corporations Code section 16403, depends on their partnership agreement.”  Whether a spouse has a gambling addiction, or are investing in the stock or commodities markets, or they are following the latest wave of bitcoiners, Kamgar gives you a chance at recovering your money.

As a reminder, those who are married and making financial agreements must remember that a marriage is a partnership, and if you breach the partnership agreement by violating its actual or implied terms, you will be held responsible for what you lose.
Peter M. Walzer was named best family law attorney in 2019 Band 1 by Chambers & Partners High Net Worth Lawyers.  He founded Walzer Melcher LLP, which was also named a 2019 Band 1 Law Firm in California for Family Law by Chambers and PartnersPeter is also President of the American Academy of Matrimonial Lawyers.