If you suspect a spouse is hiding their true net worth, don’t forget to look closely for potential digital assets.
When couples navigate the complexities of divorce, financial transparency—or a lack thereof—can play a major part in the outcome of the property division process. One or both parties may attempt to hide assets from the marital estate, such as failing to report income or maintaining undisclosed accounts.
The rise of digital assets like cryptocurrencies and non-fungible tokens (NFTs) has created new ways for parties to tuck away marital funds. In this post, we look at a few of the most common digital paths parties use to conceal cash, and offer suggestions for divorce counsel and their clients about ways to recognize signs that a spouse may be hiding digital assets.
The Brave New World of Digital Assets
While many spouses, lawyers, and finders of fact might have heard of cryptocurrency and other digital assets, they may not have a clear understanding of what those assets are and how they work.
As a recent CNBC report on crypto assets in divorce reported, lawyers around the country are struggling to keep up “with all of the new ways that people earn and safeguard digital assets that largely exist outside the reach of centralized intermediaries such as banks.” One lawyer quoted in the article noted that her state, Florida, had “only recently added ‘cryptocurrency’ into the standard request for production of documents—a key part of establishing the couple’s marital property during the discovery process.”
For those new to digital assets, it is important to remember that, in essence, they are simply the online counterparts of traditional assets like cash, real estate, or investments. And while you may not be able to physically touch them, they can hold tremendous value and have a substantial impact on the division of marital property.
Two of the best known and most popular examples of digital assets are Bitcoin and NFTs. Bitcoin is a virtual currency that can be transferred electronically across a decentralized and transparent digital ledger called the blockchain. Like traditional currencies, Bitcoin fluctuates in value based on demand and has traded as high as $60,000 per coin. Along with similar cryptocurrencies that have developed in recent years, Bitcoin can be bought, sold, and traded through a variety of methods, including cryptocurrency exchanges like Coinbase and other third-party payment services such as Cash App and Zelle.
NFTs, on the other hand, are digital assets that serve as proof of ownership for a unique piece of digital artwork or collectible and are stored on a blockchain. Famous digital artwork such as “The Merge” and “Clock” have been sold for more than $50 million each. NFTs are commonly traded in online marketplaces like OpenSea in exchange for various cryptocurrencies.
Untying the Knot to Find Hidden Assets
The increasing variety, sophistication, and complexity of digital assets have made it easier for some spouses to make purchases and horde cryptocurrency or NFTs in ways that are difficult for spouses to detect. And for lawyers, the decentralized nature of the transactions makes it exceptionally difficult to find an institution to subpoena to gather information related to a party’s potential digital holdings.
Yet finding digital assets is not impossible. Through clever financial investigation techniques and cutting-edge technology, forensic investigators are able to carefully examine transaction records and analyze the blockchain. By following the digital footprint, for example, they can uncover the hidden connections between different Bitcoin addresses.
While finding transactions may require deep, forensic analysis, you don’t have to be an expert to spot indicators that a spouse has purchased digital assets. Here are a few ways to search for clues:
- Review bank and credit card account statements for payments to cryptocurrency exchanges, NFT marketplaces, or peer-to-peer payment services. Cryptocurrency exchanges like Coinbase, Binance, and Kraken allow users to buy, sell, and trade various cryptocurrencies. Many peer-to-peer payment services like Venmo and Cash App also allow users to purchase cryptocurrency. Transaction detail can often be obtained by requesting account activity directly from the exchange or service.
- Review past tax returns. In 2020, the IRS began requiring taxpayers to disclose on their Form 1040 whether they have received, sold, sent, exchanged, or otherwise acquired any virtual currency.
- Review your spouse’s social media activity. Given the digital nature of digital assets, social media is a likely place for your spouse to share their interests with a larger community. Look for activity related to purchases of NFTs or cryptocurrency.
As the world continues its rapid digital transformation, we find ourselves navigating uncharted territory. The truth is, it will take time for most individuals to fully grasp and effectively interact with digital assets. If you suspect that a spouse is hiding marital property in the form of digital assets, consider consulting an expert that can help you to follow the digital money. An equitable distribution of marital property may depend on it.
The team at Forensic Strategic Solutions has deep experience with the kind of forensic technology necessary to uncover hidden assets and Investigative Financial Consulting practice specializes in helping counsel and litigants find missing puzzle pieces and solve financial mysteries. To learn more, contact us for a consultation.