Using ADR in Family Law Cases Involving Digital Assets

Of all the types of legal cases, family law cases are often the most complex. "They’re like a pie, and there are different slices,” explains JAMS neutral Hon. Lorna A. Alksne (Ret.). “There’s child custody, there’s child support, there’s property, there’s debt.” Family law cases are also among the most urgent, with the lives of both disputing parties—and, more importantly, any children they might share—hanging in the balance until a resolution is reached. Finally, family law cases are emotional. They involve the dissolution of a marriage—of a family—and that’s always fraught.

The complex, urgent and emotional nature of family law cases makes them difficult to resolve in a traditional court. “In court, the press of other business is constantly pushing on the judges to finish one case and start with the next one,” says Alksne, making examining the intricacies of each family law case challenging. Moreover, because many courts are overloaded, “Hearing dates are a long way off,” says JAMS neutral Hon. Jackson Lucky (Ret.). And, of course, the adversarial nature of litigation only heightens emotions. “You're trying to make a deal to split someone's life apart,” says JAMS neutral Daniel B. Garrie, Esq. “That’s already hard enough. But it’s much harder when you try to do it using litigation.”

It's no wonder more and more disputing parties in family law cases are turning to alternative dispute resolution (ADR) to settle their conflicts. Indeed, ADR addresses all three of these problems. “ADR professionals are less burdened than some family law bench officers are,” says Lucky. “So, especially when there are voluminous documents, they have the ability to review each document without worrying about the 20 matters that are on calendar for tomorrow.” Alksne agrees, noting, “Any case can be done quicker, with more time and attention, with ADR.” ADR helps de-escalate tensions too—and that’s better for everyone. “Every case that goes through ADR that settles is better for the children and is better for the disputing parties,” says Alksne.

Apart from these benefits, using ADR can also benefit family law cases involving digital assets like non-fungible tokens (NFTs) and cryptocurrency. An NFT is a unique digital file—often art, music, video or something similar—while cryptocurrency is a form of virtual currency. There are various types of cryptocurrency, but family law cases generally involve these three:

• Payment cryptocurrency: This acts like money. It’s “minted” in limited quantities and can be used as a medium of exchange when buying and selling goods. An example of a payment cryptocurrency is Bitcoin.
• Stablecoins: A stablecoin is linked to a “real” currency, usually the U.S. dollar or the euro—so it tends to be more stable.
• Utility tokens: A utility token grants permission to use some type of service (like cloud storage), consume some type of media (like a game or a movie) or receive some kind of benefit (like a discount).

NFTs and cryptocurrency both rely on a computer technology called a blockchain. A blockchain is a distributed database, meaning its contents are distributed among several computers. Its purpose is to record transactions, such as orders, payments or ownership transfers, often of digital assets like NFTs and cryptocurrency. Each recorded transaction is saved as a “block” of data that cannot be deleted, edited or otherwise tampered with. This block is then attached to the block and added immediately before it, like links on a chain. Anyone authorized to access a blockchain can see every block—and therefore every transaction—on that chain. However, transactions can be conducted anonymously. So, while you might be able to see a block, you might not be able to identify the parties involved in the associated transaction.

In the context of family law, digital assets on a blockchain pose two challenges. First, says Garrie, “They’re very easy to hide, and they’re costly to find if someone has hidden them effectively.” Second, they are challenging to value. As with any asset, “There's the market rate, there's what you paid for it, there's where it may be worth,” says Garrie. But with digital assets, “Their value can change very quickly and very dramatically.” This volatility makes it much more difficult for disputing parties to decide how to divide these assets. “The other issue is that valuing tokens, which are distinct from cryptocurrencies, requires a different skill set,” says Garrie. “It is imperative when trying to resolve the value of these assets that the neutral is intimately familiar with cryptocurrency, blockchain, tokens and other digital assets to ensure that they can effectively guide this process,” says Garrie. “It's harder to predict, from an ‘out’ spouse's perspective, whether they should take the cryptocurrency as an equalizing payment or whether they should let the other person keep it,” says Alksne.

“When you're dealing with crypto assets, you really need someone who has the expertise and understands crypto and tokens,” says Garrie. Because digital assets are easier to hide and more difficult to valuate, says Lucky, they represent “a perfect storm for family law disputes”—one that the courts are ill-suited to navigate. The main issue, he says, is this: “When you are dealing with the courts, you get whatever bench officer is on the wheel the day your case comes up, and that bench officer may not have a background in crypto technology.” With ADR, however, the disputing parties “can hand-pick somebody who has a background in both family law and technology,” says Lucky. This increases the chances that any hidden assets will be uncovered and that they will be valuated correctly. Lucky notes that this approach is quicker and more efficient too because “lawyers can spend less time preparing documents that explain the rudiments of the technology.”

Using ADR for family law disputes involving digital assets also tends to result in a resolution that is fairer for everyone because neutrals can ensure that each disputing party understands what’s at stake. “The only way to get a resolution is to spend time educating everybody so they buy into the settlement agreement,” says Alksne. Indeed, says Garrie, “ADR is probably the only effective way to handle these types of disputes, because you can bring in experts and everybody can be in the same room.”

Settling family law cases is always challenging. But when digital assets are involved, it can be even harder. Using ADR with these types of cases can help ensure a fair and (mostly) satisfying resolution—in less time and with less pain.

Hon. Jackson Lucky (Ret.) is an arbitrator, mediator, special master/referee and hearing officer at JAMS, where he handles employment, malpractice, tort, matrimonial and commercial cases. He served on the Riverside County (Calif.) Superior Court from 2008 to 2021, where he supervised the family law and criminal law divisions. He finished his career handling unlimited civil cases. Judge Lucky has received “judicial officer of the year” awards from APALIE, the Leo A. Deegan Inn of Court and the Riverside Barristers.

Daniel B. Garrie is the co-founder of Law & Forensics, a neutral with JAMS, the editor-in-chief of the Journal of Law and Cyber Warfare, and a lecturer at Harvard, where he teaches cryptocurrency, blockchain, forensics and cybersecurity law. Additionally, Mr. Garrie is a Certified Blockchain Engineer and advises digital asset platforms on a range of issues.

Hon. Lorna A. Alksne (Ret.) is an arbitrator, mediator, special master/referee and judge pro tem at JAMS. She joined JAMS after more than 20 years on the San Diego Superior Court. Judge Alksne served 10 years in the Family Law Division, where she presided over all areas of family law, and two years in the Civil Division, where she presided over all aspects of civil litigation. Prior to her retirement, from 2020 to 2022, Judge Alksne was the presiding judge of the San Diego Superior Court, which is the second-largest court in California, with 154 bench officers.