Crypto hunter discovers US$500,000 worth of bitcoin hidden by husband during divorce proceedings

Picture for illustration purpose only.

21st May 2023 – (New York) A growing number of spouses are finding it increasingly difficult to track down hidden cryptocurrency assets during divorce proceedings, leading to a rise in demand for the services of forensic investigators. The decentralised nature of cryptocurrency, combined with the anonymity of some coins, makes it difficult to trace and de-anonymise transactions. According to an NBC News poll, one in five Americans have invested in or traded cryptocurrency, with men aged between 18 and 49 making up the largest demographic. Divorce attorneys say that the law is struggling to keep up with digital assets that largely exist outside the reach of centralised intermediaries such as banks.

For example, after months of discovery and the assistance of a forensic accountant, Sarita, a New York housewife in the midst of a divorce, eventually discovered 12 Bitcoins worth half a million dollars in a previously undisclosed crypto wallet. She was blindsided by her husband’s cryptocurrency investment, as she was not aware of the asset’s existence.

While the blockchain technology used to record all cryptocurrency transactions is a public ledger, some spouses have become adept at hiding their assets. Divorce attorney Kelly Burris says it can be easy to hide cryptocurrency assets if one spouse is tech-savvy and the other is not. Cryptocurrency is not regulated by any centralised bank, making it difficult to subpoena someone and obtain documents and information on their holdings.

The ideal way to get information on a spouse’s crypto holdings is to subpoena that information from a centralised crypto exchange. Otherwise, the process often involves a forensic analysis of the spouse’s computer or phone to identify a wallet address and then a subsequent blockchain analysis. Nick Himonidis, a New York-based forensic investigator, says that crypto asset forensics, cryptocurrency forensics, and blockchain forensics have become a significant part of their practice and the fastest-growing part of their practice.

Himonidis estimates that 25% of his divorce-related cases involve some elements of cryptocurrency. Some cases are simple, where, for example, a cryptocurrency such as Bitcoin is a custodial asset held in a brokerage account or on a trading platform such as Coinbase. Other cases, however, are more complex and require a neutral forensic cryptocurrency expert to marshal and account for the party’s crypto assets and track down any undisclosed crypto assets that one party may have.

One of the core tenets of Bitcoin is that its public ledger, which stores all token transactions in its history, is visible to everyone. However, there is a subset of cryptocurrencies known as privacy tokens that have anonymity features built into them. Coins such as Monero, Dash, and Zcash, which operate on their own blockchains, disguise practically all transaction details, making it virtually impossible to trace and de-anonymize transactions.

Multiple investigators and attorneys are always on the lookout for any type of crypto, but particularly privacy tokens. There is also special attention paid to any kind of hardware wallet or computing device, which can double as a form of “cold storage” for cryptocurrencies. People who holdtheir own cryptocurrency can store it “hot,” “cold,” or some combination of the two. A hot wallet is connected to the internet and allows owners relatively easy access to their coins so they can spend their crypto. The trade-off for convenience is potential exposure to bad actors and forensic investigators working for divorce attorneys.

Family and marital law attorney Kim Nutter says that although she first dove into the crypto vernacular in 2015, the state of Florida, where her practice is based, only recently inserted “cryptocurrency” into the standard request for production of documents, which is a key part of establishing the couple’s marital property during the discovery process. She believes that the law is still trying to catch up with this novel form of currency, even though it has been around for quite a while.

The rise of cryptocurrency as an asset class has created new challenges for divorce attorneys, forensic investigators, and judges trying to divide marital property during divorce proceedings. The decentralised nature of cryptocurrency and the anonymity of some coins make it easy for spouses to hide assets, and the law is struggling to keep up. As more people invest in cryptocurrency, the demand for forensic investigators who can track down hidden crypto assets is likely to increase.