Crypto Searches in Divorce

As Bitcoin surges in value once again, divorcing spouses may be tempted to convert cash into electronic currency. Finding it can be harder than finding cash, but if you do find it, you can make a comparatively fast case that your spouse is undercounting assets.

Faster cases cut down on legal fees, and what client doesn’t want that?

But how can this be? Isn’t crypto untraceable, just a big string of letters and numbers with no name attached to it? That is true, but if you can get hold of a person’s crypto code, you can get a snapshot of cash flows going back years – something that would take much longer to do if you needed to look over bank statements from a variety of institutions and jurisdictions.

One search on the blockchain (the public electronic ledger that contains all transactions of a particular crypto currency) will tell you how many transactions have taken place with that wallet and for how much. Those blockchains are wide open. Imagine being able to see every wire and ACH transfer for every bank account in dollars (minus the name of the account holder). Incomplete, sure, but it would still be something to behold and potentially very useful.

Assume Husband says he’s worth $250,000, but you see that in the past two years $2.5 million has passed through his blockchain account. That’s going to make a judge sit up and take notice.

How to Get That Code

This is the hard part. If you are allowed to look at a computer or phone, you can look for crypto “wallet” apps on the device. Not all crypto transactions need be through an app, however. Some can be web-based and the user can try to delete the history. It’s always good to have a computer expert look over the device because “deleted” material can often be reclaimed unless overwritten several times by someone who knows what he’s doing.

And when are you allowed to look at a spouse’s computer or phone? When that device is marital property. If it’s owned by his employer, it’s probably off-limits. We’ve written about this issue in When Spying on Your Spouse’s Computer Turns into Wiretapping and When You’re Allowed to Look Through Your Debtor’s Computers and Phones.

One work-around if you are not sure (and in good faith, not sure) is to copy the device and preserve the evidence. Then, let a judge decide whether or not you may look at the copy.

Not So Impregnable

We saw clearly the benefits of searching for money on the blockchain earlier this year, after Colonial Pipeline was able to recover a chunk of the millions of dollars in ransomware it had paid to hackers. The pirates locked down Colonial’s computers and demanded payment to a crypto currency account in order to release the lock. Once investigators had the crypto address of the payee, they were able to see just where that payee had forwarded bits of the ransom currency. It turned out it went to a bunch of crooks authorities already knew about, and so some of the money was recoverable.

As the Wall Street Journal reported at the time, “crypto experts say it is at times easier to track than hard currencies such as U.S. dollars.” The article went on to explain:

Crypto wallets provide owners a measure of personal privacy and freedom from regulatory and tax oversight in some countries. But blockchains are visible to the public, enabling law-enforcement investigators and outside specialists to watch the funds move between addresses and through exchanges, online services where users can buy or sell holdings or cash out.

Crypto’s Other Weakness – The Need to Convert

Nobody starts out with crypto currency. You have to use traditional currency or credit to get the stuff using local bank transfers, international wire transfers, third-party processers, or credit/debit cards.

Where crypto currency provides an opening is that people still find it impractical to pay for things with crypto. A cup of coffee, a rental car, a hotel room – it’s just so much easier to use a card because crypto transactions can take an hour or more to clear. If you pile nearly all of your assets into crypto and then decide to wait it out for the end of the divorce, that could take time. What if you need to pay for something? Then, your crypto gets converted back into the conventional finance system.

Divorce attorneys are already onto the banking and credit card records: Any payment into or out of one of the crypto platforms will ring an alarm bell, allow you to subpoena those platforms for records, and get the crypto code for your debtor or litigation opponent.

Nobody is saying it’s easy to get at crypto assets, but it’s far from impossible much of the time. Given someone’s computer or phone, it’s probably easier than looking to unspecified “offshore jurisdictions” for evidence of stashed cash. If there is enough money at stake, that’s a good start.

If crypto ever becomes an everyday currency, so much the better for chasing it down. Follow the guy to the dry cleaner, then get the cleaner’s records to see where the payment for $29.75 came from. But that’s in the future. Then, the allure of crypto will be purely for its alleged sound-money properties, not its secrecy.