Hidden crypto holdings turn divorce battles into high-stakes cases

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The rising popularity of cryptocurrencies as investment assets has introduced a new source of conflict in divorce cases. Hidden digital assets are a growing concern, leading to turmoil within divorce proceedings.

Indeed, divorce attorneys and financial advisors are now confronted with complex situations arising from financial deception related to undisclosed cryptocurrency holdings, CNBCreported on May 20. 

The scenario is particularly prominent in states like Florida, Texas, New York, and California, where cryptocurrencies play a significant percentage of divorce cases, ranging from 20% to 50%.

Interestingly, attorneys and advisors are discovering cases where one spouse secretly invests substantial amounts, ranging from hundreds of thousands to millions of dollars, in cryptocurrencies without their partner’s knowledge. 

Tactics deployed to hide cryptocurrencies 

Some tactics involved include dispersing crypto across various coins on different blockchains and complicating tracing money trails. Interestingly, due to the ability to trace Bitcoin (BTC) in some cases, spouses opt for privacy-centered digital assets such as Monero (XMR).

“What I find in litigation is because this is so new to all of us, even the most seasoned attorneys — unless you’re really going out of your way to study this — educating the court, knowing what to ask for, and finding the right experts, it’s much more of a scramble to me than other areas of law which had been around much longer,” said family and marital law attorney Kim Nutter.

For instance, in one case, a woman uncovered her ex-husband’s undisclosed crypto wallet holding 12 Bitcoins, valued at approximately $500,000 at the time. 

Interestingly, forensic investigators specializing in cryptocurrency tracing have emerged as a new profession amidst the hunt for hidden crypto assets during divorces. 

Lack of regulations

Tracking hidden crypto assets has become increasingly complex as hunters face challenges stemming from cryptocurrencies’ decentralized and unregulated nature. Obtaining subpoenaed information related to these assets is often difficult due to the absence of centralized regulation.

“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,” divorce attorney Kelly Burris. 

At the same time, the valuation and division of marital assets are also significant challenges when spouses include metaverse properties and non-fungible tokens (NFTs) in their crypto portfolio. 

Overall, the clandestine presence of cryptocurrencies in divorce cases presents unique challenges, testing legal and financial experts’ expertise.