The Role of Cryptocurrency in Divorce

With its decentralized nature, cryptocurrency is introducing new complexities to divorce proceedings. One challenge divorcing spouses are facing is the potential of hiding cryptocurrency assets, and the methods necessary to uncover these digital assets during a divorce.

CNBC describes a recent divorce where a woman found it suspicious that her millionaire husband had very few assets to report – until the forensic accountant she hired found 12 bitcoins worth half a million dollars in a hidden crypto wallet. The former wife, Sarita, says she felt blindsided: “I know of bitcoin and things like that. I just didn’t know much about it,” Sarita said. “It was never even a thought in my mind, because it’s not like we were discussing it or making investments together. … It was definitely a shock.”

She is not alone – more and more people are investing in cryptocurrency and more and more people are failing to report it during the property division portion of their divorce. This is a big no-no, as concealing assets is illegal. Yet, people attempt to do it anyway. Why?

Some individuals might attempt to conceal their digital assets and cryptocurrency to prevent those assets from being included in the marital estate and subsequent division. Others may hide assets in an attempt to preserve their financial independence, maintain privacy, or gain an unfair advantage in divorce proceedings. In high-conflict divorces, the desire for vengeance or to inflict financial harm may drive spouses to conceal their cryptocurrency holdings.

Common methods of hiding cryptocurrency

Divorcing spouses may employ various techniques to hide their cryptocurrency assets, taking advantage of those characteristics that make cryptocurrencies challenging to trace. Some common methods include:

• Crypto mixing. Mixing services (also called tumblers) can muddle up the transaction history of cryptocurrencies. This makes the original source of the assets hard to trace.
• Offshore exchanges. Using exchanges in jurisdictions with more lenient regulations also helps conceal assets. These offshore exchanges offer more privacy and reduce the chance of detection.
• Cold storage/wallets. Storing crypto in offline wallets offers even more security and anonymity, as the wallets aren’t connected to the internet, which makes it harder to link the assets to a particular individual. The CNBC article mentions a standoff between a divorcing couple where one spouse found the wallet but the other spouse had the password, and neither would budge.
• Conversion to privacy coins. Swapping cryptocurrencies for privacy-focused coins like Monero or Zcash can further obscure a transaction history and make tracing difficult.

However, it’s not impossible to track down cryptocurrency.

Detecting hidden cryptocurrency

Per CNBC:

The world of financial infidelity has become increasingly sophisticated, as investors “hop” coins across blockchains and sink their cash into metaverse properties.

Just as cryptocurrency has become more sophisticated, so have the methods forensic accountants use to search for them. Detecting hidden cryptocurrency requires expertise in digital forensics, blockchain analysis, and collaboration with regulatory authorities. Some common detection methods include:

• Blockchain analysis. A blockchain analysis involves looking at the publicly available transaction history to trace the cryptocurrency movement. By analyzing the patterns and addresses, forensic experts can uncover hidden assets.
• Digital forensics. Digital forensic experts can employ techniques to access the digital devices of a spouse, such as smartphones, computers, and hardware wallets to recover addresses, private keys, and transaction records.
• Subpoenas and court orders. In some cases, spouses may seek court orders or subpoenas to compel exchanges or financial institutions to disclose information about cryptocurrency holdings and transactions. This legal approach can aid in uncovering hidden assets.

You may be curious as to what happens if you uncover your spouse hiding cryptocurrency.

What are the legal implications of hiding cryptocurrency?

Hiding cryptocurrency during divorce can have significant legal implications for the spouse attempting to conceal the assets. These consequences may include:

• Contempt of court. If a court discovers that a spouse intentionally hid cryptocurrency assets, it may hold them in contempt. This can result in penalties, fines, or even jail time.
• Asset division and spousal support. Concealed assets can be considered part of the marital estate, and the spouse who attempted to hide assets may end up facing unfavorable consequences during property division and spousal support For example, a Judge may award a larger share of assets to the innocent spouse to compensate for the hidden assets.
• Loss of credibility. If a spouse is found to have hidden cryptocurrency, it may cast doubt on their overall credibility and integrity. The court may view their actions unfavorably, potentially impacting other aspects of the divorce settlement, such as child custody or visitation rights.
• Legal costs or reputational damage. The process of detecting hidden cryptocurrency can be time-consuming and expensive. The spouse attempting to hide assets may be held responsible for the legal costs associated with the detection efforts. Additionally, their reputation may suffer as a result of the court’s findings, impacting personal and professional relationships.

Hiding cryptocurrency during divorce proceedings presents significant challenges and legal consequences. Despite the complexities involved in concealing digital assets, detection techniques have become more sophisticated, aided by advancements in blockchain analysis and digital forensics. Divorcing spouses should be aware of the legal implications associated with hiding cryptocurrency and understand that attempts to conceal assets can ultimately result in severe penalties, financial disadvantages, and reputational damage. If you believe your spouse is hiding cryptocurrency, talk to a New Orleans family law attorney as soon as possible.

At the Law Offices of James A Graham, if you’re going through a divorce, we can help. Talk to us today about property division, spousal support, child custody, or any other matter. Just call our office or complete our contact form to schedule a case review with our New Orleans divorce attorney today.