Secret cryptocurrency holdings are causing more divorce disputes on a regular basis, according to attorneys

Updated: 21 May 2023

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A number of recent cases suggest that disputes over cryptocurrency ownership are on the rise among divorcing couples, particularly when the crypto has been hidden from the other spouse.

According to a CNBC story, as the crypto market has grown in recent years, financial adultery involving concealed crypto ownership has complicated the work of divorce lawyers and financial consultants.

Attorneys from Florida, Texas, New York, and California told CNBC that as cryptocurrency has become a more popular investment in recent years, it now influences 20% to 50% of the divorce cases they handle. A recent report by CNBC says the number of cases where one person has secretly invested tens of thousands or even millions of dollars in cryptocurrency is increasing.

Investigators told CNBC that in some complex cases, one spouse was attempting to conceal the funds by shifting their bitcoin across other currencies on numerous different blockchains to impede tracking. According to the testimonial of one divorcee who spoke with the publication, she was shocked to discover that her ex-husband, who made at least $3 million year, had relatively few assets that could be divided during the divorce.

After receiving months of assistance from a forensic accountant, the woman found her ex-husband’s secret cryptocurrency wallet, which included 12 bitcoins, which were worth around $500,000 at the time and little over $324,000 as of Saturday’s most recent bitcoin pricing. She told CNBC it was a “shock” to hear about the hidden investments, but it seems like her experience is becoming more common.

Texas divorce lawyer Kelly Burris said in the interview that:

The thing with cryptocurrency is it’s not regulated by any kind of centralized bank, so usually you can’t subpoena somebody and get documents and information related to somebody’s cryptocurrency holdings.

The extremely volatile nature of cryptocurrencies can make a divorce more difficult even when a spouse is open about their investments due to how quickly their value can change.

How cryptocurrency explorers find coins

An entirely new career category for forensic investigators has been established by the hunt for hidden crypto stashes in divorce. While the blockchain is a public ledger, according to the crypto hunters CNBC spoke with, some spouses have gotten quite proficient at hiding their financial activities.

“Crypto asset forensics, cryptocurrency forensics, and blockchain forensics have become a significant part of our practice and by far, the fastest growing part of our practice,” said Nick Himonidis, a forensic investigator located in New York.

Himonidis, a computer forensics expert who is also a qualified private investigator, believes that 25% of his divorce-related cases contain some mention of cryptocurrencies. He claimed that some of those scenarios are clear-cut and easy, including when a cryptocurrency like bitcoin is held as a custodial asset in a brokerage account or on a trading website like Coinbase.

Cryptocurrency owners have the option of storing their coins “hot,” “cold,” or a combination of the two. A hot wallet is online-connected and gives owners reasonably simple access to their money so they may use their cryptocurrency. Convenience comes at the expense of potential exposure to criminals and forensic detectives employed by divorce lawyers.

The private keys, or passwords that allow the cryptocurrency to be moved out of the wallet, are kept in cold storage on hardware like PCs that are not online. Thumb drive-sized gadgets like a Trezor or Ledger provide an additional method of cold storage security for cryptocurrency tokens by protecting both the cryptocurrency and the access keys.

Mark DiMichael, a licensed cryptocurrency forensic investigator with more than 14 years of experience in the area, told CNBC about a case in which a divorced couple fought over a password-protected Ledger device.

According to DiMichael, “chain hopping”—in which a person quickly switches from one blockchain to another—is a method widely utilized to confuse investigators.

The Internal Revenue Service, law enforcement, and financial institutions who require it for their know-your-customer and anti-money-laundering duties can now monitor payments across blockchains, according to Himonidis. For example, we previously reported on Chainalysis, which is a startup that helps the government trace crypto.

Himonidis described his work as a physical race to try to stay up with the most recent in quickly developing crypto technology, even with the aid of modern search tools.

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