Crypto Assets for the Divorce Attorney
Cryptocurrency, like any other asset, would be subject to division and/or assignment in a divorce case. Due to its pseudo-anonymous nature, a dishonest spouse may buy cryptocurrency to obfuscate their funds in anticipation of a marital separation. It is important for divorce lawyers to keep this in mind while approaching a case and determine whether cryptocurrency is involved. Once it is proven that a spouse owns cryptocurrency, the next step would be to determine the value of cryptocurrency owned and how to appropriately divide the funds between the parties.
Determining whether cryptocurrency is involved
A good starting point for determining the involvement of cryptocurrency in marital assets would be to request the spouse to disclose any cryptocurrency holdings. If the spouse denies holding such assets, the client can be asked if their spouse ever mentioned investing in crypto or if they ever showed interest in the topic. Another indicator would be significant lifestyle changes such as the purchase of a new car or a real estate property without a significant change in the spouse’s income and saving patterns. Looking through the spouse’s activity on social media may also evidence investments in assets with the potential for exponentially increasing value, such as cryptocurrency.
If there is sufficient evidence to suspect a material amount of non-disclosed cryptocurrency owned by the spouse, the attorney may request access to their bank and credit card statements. This can prove helpful as banks are often the entry point for investing in cryptocurrency. The attorney may also choose to request access to the spouse’s electronic devices and hire a forensic investigator to inspect them. Investors hold cryptocurrency in digital wallets which require a private key to access their stored value. If this private key is lost, they will permanently lose access to the funds. This private key would either be stored digitally or written on paper. Finding the private key(s) themselves or evidence of their existence (such as “seed phrases” — seemingly random words in lists or groups) would confirm the existence of cryptocurrency held by the spouse.
https://en.m.wikipedia.org/wiki/File:Creating-Atala_PRISM-crypto_wallet-seed_phrase.png
https://blog.coinsource.net/private-keys-public-keys-addresses-and-wallets/
Determining the value owned
Once a cryptocurrency address is discovered, other addresses in the wallet can also be identified using forensic investigation tools like QLUE™ by Blockchain Intelligence Group. The use of QLUE™ can greatly aid attorneys in identifying other wallets owned by the client’s spouse, as well as where they have spent their cryptocurrency. Once all of their wallets are discovered, the wallet balances can be aggregated to determine the total value of cryptocurrency owned.
Once the spouse’s total crypto stake is determined, the next step would be to divide or assign assets between the spouses. One essential consideration would be the timing by which either party invested in cryptocurrency — did the client or their spouse own cryptocurrency before the marriage or invest in it during the marriage, and were previously held crypto assets by either party commingled after the marriage. This can be determined by looking at the transaction history of their cryptocurrency addresses as each cryptocurrency transaction is timestamped and archived on the blockchain.
As more people invest in cryptocurrency, its involvement in divorce cases will become more commonplace. It is important for divorce lawyers and forensic investigators to understand how cryptocurrency works, to effectively track, value, and divide/assign it. Take our Certified Cryptocurrency Investigator course, or request a product demonstration, to learn more.
