February 27, 2024 In Family Law and Divorce

Is your spouse hiding assets in crypto?

Do you think your spouse is hiding assets in a cryptocurrency like Bitcoin?

First off, you are not alone.  This is a common complaint about spouses when getting a divorce.  Usually, it’s the husband who is accused of hiding assets.  Hidden assets are a serious client concern since if the asset can not be found, it can be excluded from a divorce decree.  Given the plethora of digital asset options: Bitcoin, Ethereum, and many other digital assets, these concerns are legitimate.

So what do you do?  Here’s the good news.  Most of these asset divestitures can be traced to a banking account that you can source and ask the court to consider.  However, Bitcoin and other cryptocurrencies bring unique issues that are not as simple as your husband opening up a checking account at a bank you were not aware that existed.

Unfortunately, tracing money in Bitcoin is quite complex.  This is due to the nature of the currency: pseudonyms.  To put it simply, Bitcoin transactions are recorded on a public ledger called the blockchain. However, the identities of the individuals or entities involved are not necessarily public.

So what can you do?  Subpoena power.  The primary tool to discovering a spouse’s hidden assets is the inherent subpoena power that comes from filing a lawsuit and hiring a lawyer.  With that said, these are some basic tools you can use to trace money in Bitcoin or other cryptocurrency:

  • Blockchain Analysis: These tools help trace the flow of funds between different addresses and identify patterns of behavior.
  • Address Clustering: Address clustering enables one to analyze clusters that indicate that thee “Bitcoin address” is likely the same person.
  • Transaction Graph Analysis: This can help identify clusters in Bitcoin transactions which often end up being simply nodes for the exact same entity.
  • Heuristics and Patterns: This involves analyising patterns of transactions to identify certain types of transactions which involve mixing services that are used to hide the origin of funds used to convert Bitcoin into fiat (dollar) currency.
  • External Data Sources: IP addresses, timestamps, or metadata from exchanges can be used in conjunction with Bitcoin to uncover additional information about the parties involved.
  • Privacy Coins and Mixing Services: This is far more complicated. “Privacy” coins like Monero and Zcash enable asset hiders enhanced privacy that significantly complicate tracing transactions. Additionally, mixing services allow users to “mix” their Cyrptocurrency with other funds to further hide their transaction history.

Remember this: it is possible to trace the flow of funds through the Bitcoin blockchain.  But it’s not easy.  Bitcoin introduces unique issues unrelated to fiat (dollar) currency that can hide their real-world identities. For these reasons, if you suspect your spouse is hiding money in a cryptocurrency or other asset, contact a lawyer with expertise in this issue so that you can ensure that you are fairly compensated in your divorce.

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