21-5-2023 (New York) A growing number of spouses are encountering difficulties in locating hidden cryptocurrency assets during divorce cases, leading to a surge in demand for the services of forensic investigators. The decentralized nature of cryptocurrency and the anonymity provided by certain coins make it arduous to trace and de-anonymize transactions. According to a recent poll by NBC News, one out of every five Americans has invested in or traded cryptocurrency, with the largest demographic being men between the ages of 18 and 49. Divorce attorneys assert that the legal system is struggling to keep up with digital assets that predominantly exist outside the realm of centralized intermediaries such as banks.
For instance, Sarita, a housewife from New York currently undergoing a divorce, was taken aback when, after months of investigation and assistance from a forensic accountant, she unearthed 12 Bitcoins worth half a million dollars concealed within a previously undisclosed crypto wallet. She had no knowledge of her husband’s cryptocurrency investment, leaving her blindsided by the existence of this hidden asset.
Despite blockchain technology, which publicly records all cryptocurrency transactions on a ledger, certain spouses have become adept at concealing their assets. Divorce attorney Kelly Burris states that it can be relatively simple to hide cryptocurrency holdings if one spouse possesses tech-savvy skills while the other does not. Due to the lack of regulation by any centralized bank, it becomes difficult to subpoena an individual and obtain documents and information pertaining to their crypto holdings.
The most efficient method of obtaining information regarding a spouse’s crypto assets is through subpoenaing data from a centralized cryptocurrency exchange. Alternatively, the process often necessitates forensic analysis of the spouse’s computer or phone to identify a wallet address, followed by subsequent blockchain analysis. Nick Himonidis, a forensic investigator based in New York, highlights that crypto asset forensics, cryptocurrency forensics, and blockchain forensics have become significant components of their practice and the fastest-growing areas within their field.
Himonidis estimates that approximately 25% of their divorce-related cases involve some form of cryptocurrency. Some cases are relatively straightforward, where cryptocurrencies such as Bitcoin serve as custodial assets held in brokerage accounts or on trading platforms like Coinbase. However, other cases prove to be more complex, requiring the expertise of a neutral forensic cryptocurrency specialist to manage and account for both parties’ crypto assets while uncovering any undisclosed holdings.
One of Bitcoin’s fundamental principles is the visibility of its public ledger, which records all token transactions throughout its history, accessible to anyone. Nevertheless, there exists a subset of cryptocurrencies referred to as privacy tokens, equipped with built-in anonymity features. Coins such as Monero, Dash, and Zcash, which operate on their own blockchains, effectively obscure transaction details, making it nearly impossible to trace and de-anonymize transactions.
Numerous investigators and attorneys remain vigilant in monitoring various types of cryptocurrencies, with privacy tokens drawing particular attention. Additionally, significant focus is placed on hardware wallets and computing devices, which can double as forms of “cold storage” for cryptocurrencies. Individuals who possess their own crypto assets can store them in a “hot” or “cold” manner, or a combination of the two. A hot wallet, connected to the internet, offers owners relatively easy access to their coins for spending, albeit with the potential risk of exposure to malicious actors and forensic investigators working on behalf of divorce attorneys.
Family and marital law attorney Kim Nutter reveals that, although she first delved into cryptocurrency terminology back in 2015, the state of Florida, where her practice is based, only recently added “cryptocurrency” to the standard request for production of documents, a crucial step in establishing a couple’s marital property during the discovery process. Nutter believes that the law
