How do I know if my spouse is hiding cryptocurrency in divorce?
As millennials reach the average age of divorce, an entire new asset class is entering the discussion. Unfortunately, this asset class has not been fully understood by the family law industry. Further, this asset class is easy to remove from the traditional financial ecosystem. Of course, we’re talking about cryptocurrency in divorce.
So if you’re concerned that your spouse is hiding cryptocurrency in your divorce, read on for some background about how cryptocurrency is often overlooked. This can give you and your counsel enough information to stop a would-be heist in its tracks.
Should I check if my husband or wife is hiding crypto?
Over half of millennial men own or have traded cryptocurrency. With the average age of divorce being 41, this means that cryptocurrency is likely a factor in marital assets for many divorces. Further, cryptocurrency has one attribute that makes it quite different from other asset classes: It’s increased over 40x in value from 2018 to its peak last year. 2018 is a relevant year, because the average duration of a pre-marriage divorce is 8 years.
So if a spouse purchased $5,000 worth of bitcoin at the beginning of their marriage, it could represent as much as $200,000 worth of marital assets in divorce proceedings.
In the majority of cases we investigate, cryptocurrency is voluntarily disclosed and accounted for. However, in cases where we find hidden assets, cryptocurrency is the husband’s preferred form of money laundering, and the majority of hidden marital assets are hidden on the blockchain (Don’t worry, we find it).
How Cryptocurrency gets overlooked in divorce
Mediators, lawyers, and courts know how to look for traditional assets; but they’re still getting up to speed on the differences that cryptocurrency brings. Normally, assets are held by custodians. If a person has an asset that isn’t cash, it’s held in a bank, brokerage, or other custodial account. As soon as cryptocurrency leaves an exchange and moves into a self-custody wallet, it exits the scope of many discovery processes.
Here, we’ll cover 5 concepts and ideas that will help you find out if your spouse is hiding cryptocurrency in divorce, and hopefully allow you to stop it.
Self Custody
Transaction Statement Terms
Cryptocurrency Exchanges and Brokerages
Withdrawals from traditional finance into cryptocurrency
The “playing dumb” tactic
Self custody
Cryptocurrency allows individuals to hold assets in their own wallet, similar to the ability for a person to create their own checking account without needing a bank to hold the assets.
On traditional financial documents, if an asset moves from a checking account to a brokerage or vice versa, there are corresponding debits and credits in each account. If an account is undisclosed, lawyers and courts have the power to subpoena financial documents from any institution. Therefore, cryptocurrency is an entirely new idea, where 1) assets that many don’t understand are 2) held in institutions that aren’t exactly like banks and 3) can be moved into a self-custody wallet that is not subject to any subpoena or institutional control.
Hiding cryptocurrency in a self-custody wallet often escapes the view of lawyers, but that doesn’t make it a good choice - all cryptocurrency transactions are public and permanently viewable on the blockchain. We just need to know where to look.
Unfamiliar terms in transaction statements
Another reason why cryptocurrency is overlooked in marital assets is because the transactions don’t look like transfers on many bank statements. Transfers to brokerages, stock purchases, and movements between checking & savings accounts are clear. However, when a person buys $100 worth of Ethereum and it shows on the bank statement as “TRANSAK” or “RAMP,” this isn’t clear that cryptocurrency is being purchased. The transaction looks like any retail transaction.
Unfamiliar with cryptocurrency exchanges & brokerages
Beyond how the transactions look on financial statements, the brokerages themselves often evade inspection during discovery. All mediators and attorneys know Robinhood and Charles Schwab, and they can probably figure out that “crypto.com” or “Coinbase” has something to do with bitcoin; but are they looking for “Kraken,” “Gemini,” or “Uphold”?
Often times, if one party does not reveal cryptocurrency exchanges directly, then the presence of an entire account can go unnoticed. There is no central database of where a person has accounts (at least not that divorce lawyers have access to), so it’s up to you and your team to uncover all exchanges during discovery.
Overlooking brokerage & exchange withdrawals
This gets even more complicated when we introduce the idea of self-custody to traditional exchanges. Did you know that you can buy cryptocurrency on leading brokerage services like Robinhood and Sofi? Also, cryptocurrency can be purchased on payment services like Venmo, Paypal, and Cash App. All of these services allow withdrawals to private wallets.
A common discovery mistake is to consider these services like traditional finance and not look for withdrawals to self-custody cryptocurrency wallets.
Playing dumb
Compounding all of the above, because cryptocurrency is so nascent, many bad actors are encouraged to try to slip away without revealing it. In many cases, because mediators, lawyers, and judges are also unfamiliar with cryptocurrency, the bad actor gets a pass when they fail to initially reveal crypto assets. It’s common for them to claim that they weren’t aware that cryptocurrency was part of marital assets, or that they felt they had turned over sufficient information by showing the cryptocurrency exchange statements and omitting the balances held in self-custody.
This will change as the industry catches up, but for now, many would-be thieves are getting a free pass from adverse inference by hiding behind the technical and emergent nature of this technology. Don’t let this tactic fool you or your counsel.
What you can do
We cover as often as we can this clear process, and the industry will stamp out the majority of fraud by simply following these steps:
Ask (fully) - In discovery, include explicit, direct, specific language about cryptocurrency. Our Resources section has a sample set of language that can be used by any mediator or lawyer.
Check statements - Review all financial statements for evidence of assets moving to cryptocurrency exchanges, payment providers, or crypto-friendly brokerages. See our Resources page for a document that contains the names of dozens of crypto-related financial terms to search for.
Check physical and digital environments - Look for cryptocurrency hardware wallets and seed phrases in your home, especially in secure areas like safes or safety deposit boxes. Then, check any shared computers or mobile devices for presence of cryptocurrency wallet software.
Subpoena - Cryptocurrency exchanges and brokerages are governed by the same regulations as banks, and they respond to well-scoped subpoenas. If you suspect a specific exchange, look for their registered agent in your state and subpoena them for records related to your spouse or whomever you suspect of hiding cryptocurrency.
At Heartland Blockchain Advisors, our goal is to stamp out fraud from blockchain technology, so we make our resources available to you for free. See our Resources section for actionable documents that you can use to find out if a spouse is hiding cryptocurrency in divorce today.
And if you have brokerage statements or transaction logs, we can review your statements, free of charge, to see if assets have moved to a private self-custody wallet. Give us a call to get peace of mind about whether or not you need a digital asset investigator for your divorce or civil dispute.
