Cryptocurrency: a growing problem in high-asset divorces

Cryptocurrency: a growing problem in high-asset divorces

On Behalf of | Oct 12, 2021 | Firm News |

The divorce process begins when you file a petition for dissolution of marriage with the Escambia County Clerk. An important part of that difficult process is the division of marital assets (anything acquired during the marriage).

Because Florida is an equitable distribution state, assets and debt are divided equitably between you and your spouse. In a high-asset divorce, assets can include business interests or a professional practice, real estate, a retirement plan, brokerage accounts, life insurance, luxury autos, art and more.

Another type of asset that is surfacing more and more in divorce and property division proceedings is cryptocurrency.

Digital money

Crypto is a digital form of money that can be used to buy services and goods. Because crypto is stored online with strong cryptography, it can be difficult to trace ownership of cryptocurrencies such as Bitcoin, Ethereum, Tether, XRP, Dogecoin and others.

The difficulty in tracing ownership is what makes crypto popular among hackers carrying out ransomware crimes – and among spouses who want to hide assets in high-conflict, high-asset divorces.

Buying, selling crypto

Bitcoin is stored in a digital wallet, an app created on a trading exchange – an online marketplace where people can transfer real money to buy crypto or they can sell crypto and receive real money. (Many times, they’re getting a lot more real money back. Bitcoin has increased in value about 80 percent so far this year.)

Because wallets aren’t associated with names and are only identifiable with a string of numbers and letters, it’s very difficult for law enforcement – or a spouse looking for hidden assets – to link a wallet to a particular person.

How crypto can be traced

Crypto can be tracked in several ways in a divorce. A family law attorney can in some cases obtain a court order to gain access for forensic searches of a spouse’s phone and computer for signs of cryptocurrency activity. Evidence can include a wallet password or address, crypto exchange login credentials, ticker symbols, confirmation emails or transfer movements on statements from banks or other financial institutions.

According to a report by business news network CNBC, there can “even be records of cryptocurrency income on past tax returns” or loan applications.

Sometimes crypto exchanges can also be subpoenaed for records.

Worth your while

New York divorce lawyer Sandra Radna said not every suspicion that a spouse has purchased crypto should be pursued. “We’re looking for people that have made significant amounts of money for it to be worth the investigation,” she said.

Because forensic investigators charge by the hour, a detailed probe can be costly.

“If it’s $5,000 (of cryptocurrency), it’s really not worth it,” Radna said, adding that “once you have an idea of the value of what’s missing, or what might have been invested, then your attorney can do the rest of the work.”

Other methods of hiding assets

There are, of course, other ways that one spouse will use to try to hide assets from the other spouse. In efforts to conceal income, business owners can manipulate company records, delay profitable deals or even pay salaries to fictional employees.

Spouses have also given large cash gifts to friends or family members who then return the “gift” after the divorce is final. Other wealth-concealment tactics include:

  • Underreporting income on financial statements or tax returns
  • Overpaying the IRS in order to get a large refund later
  • Deferring salary, bonuses or commissions
  • Transferring stock to family members, friends or a dummy company created for that purpose
  • Putting assets in a safe deposit box
  • Offshore accounts

A stiff price to pay

Remember, it’s against state law to hide assets in divorce. When a spouse is caught illegally concealing wealth, the court can decide that the equitable division of property required under Florida law includes the allocation of a greater portion of the marital assets to the other spouse.

In other words, an asset-concealment effort can backfire in court on your spouse, who can wind up with a significantly reduced portion of the marital assets – and can even be required to pay your investigation costs and legal fees.