Divorcing in the Blockchain: Crypto Creates New Nightmares for Divorce Lawyers

A good divorce lawyer will be a dog with a bone tracing your soon-to-be-ex’s assets. It’s the “ex” hiding money in the new partner’s bank account, it’s assets transferred to a company, even the cash stash under the mattress – the idea of getting away with what you can has been around as long as divorce settlements. So what of Crypto? In the age of “untraceable money” how do you trace the value of your soon to be ex’s cryptocurrency and non-fungible tokens?

Crypto vs Non-Fungible Tokens

A non-fungible token (NFT) is a unique digital asset that cannot be replicated. Think of it as a piece of fine art in the digital age. These vary from a “cool weapon” in a video game, to actual intellectual property rights that can be used in the real world.

Cryptocurrency is also a digital asset (known as a digital token) is a “credit” secured by a process called cryptography, protecting the credits and preserving their unique value. Cryptocurrency is created via blockchain technology, where data is stored, controlled and shared via a network of users, rather than a central use, like a bank. Blockchain networks are very secure and designed especially for security – meaning it’s very hard to find out what your ex is up to in a blockchain network. Your digital assets are stored in a “digital wallet”.

Tracing digital assets proves a nightmare for lawyers

“While cryptocurrency isn’t a new concept, it remains a comparatively lawless concept, which is, of course, largely the aim of it. Determining a partner’s digital asset pool accurately can be near to impossible. We are relying on laws that aren’t specifically suited to the digital age.” said Brisbane Family Lawyer, Jennifer Hetherington.

The first piece of advice from most divorce lawyers is to find out what crypto holdings your partner has and any information around your ex’s digital wallet. If you have screenshots, ledgers, or any information at all around your partner’s digital wallet, this can be used by your law firm and their partner accounting firm to trace digital assets, or at least, force your ex to provide disclosure to a judge. This is easier said than done, especially if you didn’t share in the crypto buying process with your partner and no longer have access to shared devices.

What your lawyer can do without full access to your ex’s devices, emails and accounts:

1. Engage a forensic accountant that specializes in digital forensics. This is an expensive option and generally reserved for cases where there is a significant amount of money tied up in crypto currency and NFT.

2. Focus on entry and exit points. Money going into the purchase process and withdrawals from crypto sites leave a trace. However, if your ex is not using “the household spending account” to purchase crypto through an online exchange, and has left the investment in the blockchain, this can be near to impossible to trace.

3. Show a history of trading digital assets. This is generally the only option available to divorcing couples, especially when your ex has less than a million dollars in digital tokens. If you can prove that your ex has been involved in digital trading, a judge may issue an order to force your ex to “hand over their records”. Your ex may or may not fully comply with this order.

The next painful issue with crypto and NFTs in divorce

If all goes well and you have an accurate picture of how much “digital coin” or how many “NFTs” your ex is holding, next comes the challenge of accurately valuing these.

Crypto’s value officially changes literally every sixty seconds. Brokerage firms like Coinbase update the value of crypto second to second but update their “public” value every sixty seconds. It’s been a turbulent time for crypto and value fluctuations day to day.

NFTs too, pose a headache for valuers. NFT values are based on the rarity, utility (NFTs can hold very real benefits such as copyright or trademark), tangibility, interoperability (if it can be used for multiple purposes), and social value of the item. Valuing them may also consider the ownership history (a celebrity’s collectable NFT like “Trump Cards” may have collector’s value) and liquidity (the ability to sell it fast) may also impact the value of an NFT. An NFT bought for $100 may be valued by your ex, at $100. That doesn’t mean that the next buyer might be willing to pay $1000 for the token. NFTs, like art, are very difficult to fully value and like crypto, NFT values fluctuate quickly.

What a divorce lawyer or divorce coach may advise

“With any pending separation, the more information you have to hand, the better you are prepared for the process ahead” said Marg Doherty, Divorce Coach. If you’re planning to leave a marriage, gathering all the information you can will make it simpler for a judge to push your ex to full disclosure. You should also consider that digital tokens are the “wild west” of asset disclosure and if a vindictive ex wishes to avoid full financial disclosure, this is a popular way to do so. Keep in mind that digital forensic services come at a premium price tag, so consider investment vs reward before going down that path.