As a Certified Cryptocurrency Investigator, I’ve seen firsthand how digital assets have complicated the already tense process of divorce. The days of solely looking at bank accounts, retirement accounts, investment accounts and real estate are gone. A significant and often overlooked piece of the marital pie can be hidden in the digital world of cryptocurrency. This article will explore cryptocurrency, divorce and 5 essentials to consider.
For many, the mere concepts of Bitcoin, Ethereum, and NFTs remain an enigma. This lack of understanding can lead to critical oversights during divorce proceedings.
Here are five crucial things you need to know about cryptocurrency when facing a divorce:
1. Digital Wallets Are the New Bank Accounts
The most fundamental concept is that cryptocurrencies are stored in digital “wallets,” not traditional bank accounts. These wallets can be:
- Software Wallets (Hot Wallets): Applications on your phone or computer, or web-based services.
- Hardware Wallets (Cold Wallets): Physical devices, similar to a USB drive, that store private keys offline for the highest level of security.
- Exchange Wallets: Wallets held through platforms like Coinbase or Binance when you buy crypto.
Why it matters for divorce: Just as you’d request bank statements, you need to identify all potential digital wallets. It’s incredibly common to have multiple wallets, and failure to uncover them means a significant portion of the marital estate could go undetected. Investigating transaction histories from these wallets can reveal the true extent of crypto holdings.
2. The Blockchain Never Forgets (But It’s Complicated)
The blockchain is a public, immutable ledger of all transactions. While this transparency is lauded, translating raw blockchain data into comprehensible financial information for a divorce case is where the real challenge lies. Every transaction, from buying Bitcoin to transferring an NFT, is recorded.
Why it matters for divorce: The permanent record makes it virtually impossible to erase a crypto transaction. However, identifying who owns what and its value at the time of acquisition or distribution can be complex. Specialized blockchain analysis tools and expert investigators are essential to piece together these digital breadcrumbs, tracing the movement of assets between different wallets and exchanges.
3. Valuation Volatility: Timing Is Everything
Cryptocurrency markets are known for their extreme volatility. A digital asset can skyrocket or plummet in value within hours, let alone the months it takes to finalize a divorce. This presents a significant challenge for equitable distribution.
Why it matters for divorce: What was once worth a substantial amount on the petition date might be a fraction of that, or even magnitudes larger, by the time the divorce is finalized. Parties need to consider:
- Valuation Date: Should it be the date of filing, the date of settlement, or an average over a specific period? There is no one right answer.
- Tax Implications: The sale or even the transfer of crypto assets can trigger multiple taxable events, which must be factored into the overall distribution.
It’s crucial to obtain a valuation from a reputable source and, in almost all cases, involve a cryptocurrency valuation expert to provide accurate assessments that will stand up in court.
4. Hidden Assets: The Allure of Anonymity
While the blockchain is public, wallet ownership can often be pseudonymous—not directly linked to a real-world identity unless revealed through a cryptocurrency exchange’s KYC (Know Your Customer) process. This perceived anonymity can be a powerful temptation for a spouse looking to hide assets.
Why it matters for divorce: Spouses might attempt to conceal crypto holdings by using:
- Self-Custody aka “Non-Custodial” Wallets: Creating a hardware or software wallet not tied to an exchange.
- Sending Crypto to Friends/Family: Transferring assets to another person’s wallet with the understanding they will return it later.
- Decentralized Finance (DeFi) Protocols: Engaging with decentralized financial applications that are difficult to track.
Uncovering hidden crypto assets often requires a multi-pronged approach: reviewing bank and fintech statements for transfers and purchases, scrutinizing tax returns, and even analyzing phone records.
5. The Need for Specialized Expertise
Finally, traditional digital forensics and forensic accounting, while incredibly valuable, often falls short when dealing with the intricacies of cryptocurrency. The technology, terminology, and legal precedents are constantly evolving.
Why it matters for divorce: You need professionals who understand:
- Blockchain technology: How it works and how to read it.
- Different types of cryptocurrencies: Bitcoin, altcoins, memecoins, stablecoins, NFTs and more; over 20 million exist!
- Crypto exchanges: Their policies, how they operate, and how to issue effective subpoenas.
- International aspects: Crypto transactions often cross borders and access can even be restricted by individual countries or states, adding even more layers of complexity.
Engaging a Certified Cryptocurrency Investigator is no longer a luxury—it’s a necessity. We help identify assets, trace transactions, and provide accurate valuations for the court.
Know that cryptocurrency is a mainstream financial instrument with significant implications for marital estates. By understanding these five key aspects, divorcing parties and their legal teams can be better equipped to ensure a fair and equitable division of all assets. Ignoring the digital elephant in the room is a risk no one can afford to take.
