Financial Deception in Divorce Cases Reveals Challenges of Cryptocurrency Assets

Introduction:

A recent CNBC report highlighted the emergence of new forms of financial deception involving cryptocurrency, as exemplified by a divorce case in New York. The report sheds light on the increasing prevalence of cryptocurrency investments and transactions among Americans. However, the legal system faces challenges in navigating the complexities of cryptocurrency assets during divorce proceedings. Lawyers and courts struggle to keep pace with the rapid development of the crypto world, necessitating the involvement of specialized forensic investigators known as "crypto hunters." These experts help trace and account for hidden crypto assets, which can prove challenging due to the lack of centralized authorities and the rise of privacy coins.

Cryptocurrency and Deception in Divorce Cases:

In a divorce case in New York, a woman named Sarita discovered her spouse's concealed Bitcoin investment totaling $500,000. Despite her husband's substantial annual income, Sarita became suspicious due to the lack of disclosed assets. Employing a forensic accountant, she unveiled 12 bitcoins hidden in a crypto wallet. The report also cites an NBC News poll indicating that cryptocurrency investments and usage are on the rise, with a significant number of Americans involved in crypto transactions, primarily men aged 18 to 49.

Challenges for the Legal System:

Legal professionals and courts encounter difficulties in dealing with cryptocurrency assets during divorce proceedings. The rapid development and complexity of the crypto world often outpace legal regulations. Kim Nutter, a Florida-based attorney specializing in family and marital law, acknowledges the struggle to address these novel forms of currency within the legal framework. The decentralized nature of cryptocurrencies and the lack of a centralized authority that can be subpoenaed for information pose significant challenges.

The Emergence of Crypto Hunters:

To tackle the complexities surrounding crypto assets, a new breed of forensic investigators known as "crypto hunters" has emerged. These experts specialize in navigating the unique challenges of tracing and accounting for hidden crypto assets. Nick Himonidis, a licensed private investigator and computer forensic expert based in New York, reports that a quarter of his divorce-related cases involve elements of cryptocurrency. Himonidis serves as a neutral forensic cryptocurrency expert, responsible for managing, accounting for, and tracing undisclosed crypto assets in such cases.

Complexities Faced by Crypto Hunters:

As Himonidis explains, tracking crypto assets used to focus mainly on popular cryptocurrencies like Bitcoin and Ethereum. However, the crypto landscape has expanded exponentially, with over 24,000 cryptocurrencies now available and a combined market cap of $1.1 trillion. Each cryptocurrency operates on its own independent blockchain, adding layers of complexity to forensic investigations. Another challenge arises from privacy-focused coins such as Monero, Dash, and Zcash, which obfuscate transaction details, making it difficult to trace sender and recipient identities and transaction amounts. Himonidis notes that de-anonymizing transactions in privacy coins like Monero is "virtually impossible."

Case Study and Technical Expertise:

Himonidis shares a case in which he discovered around $700,000 worth of Monero on a MacBook during a legal proceeding. The cryptocurrency was stored in a command line wallet, a type of software wallet that requires specialized technical skills to access on a Mac. This highlights the need for crypto hunters to possess advanced technological expertise to tackle complex cases involving unconventional storage methods or lesser-known cryptocurrencies.