Utilising Blockchain Forensics in a Divorce with Hidden Cryptocurrency

As with all other assets, cryptocurrency such a Bitcoin must be properly disclosed within financial remedy proceedings following a divorce. However, due to its pseudonymous nature, clients going through the divorce process, where the onus is on each spouse to honestly disclose all of their assets, may have genuine concerns that such class of assets may not be disclosed in the first place, or wish to have it investigated or traced if such assets are suspected to be held.

Whilst cryptocurrency is a relatively “new” form of asset, and won’t feature in most divorce cases, there will be some cases where identifying and discovering, as well as valuing cryptocurrency, will be paramount.

But if that asset is deeply hidden, how would your client know if their spouse owned any cryptocurrency which would warrant further investigation? Whilst most family lawyers and forensic accountantss are trained in “following the money” and asking the right questions to discover that “hidden treasure”, cryptocurrency is much more difficult to trace and is not something that family lawyers, or even judges, deal with every day. There are, however, experts who can help family lawyers ensure that they have done the necessary due diligence during the disclosure process and ensure that the matrimonial pot includes all the family’s assets.

I spoke with Paul Sibenik of CipherBlade, a Blockchain Investigation Agency based in Canada, who has extensive experience of tracing and valuing cryptocurrency for clients all around the world and asked him what we, as family lawyers, should be alive to if a client believes that their spouse has undisclosed cryptocurrency.

In Paul’s experience, people who own cryptocurrencies like Bitcoin are generally passionate about it and like to frequently talk about it.So, if a client instructs that their spouse has talked about cryptocurrency before or seems to have a working knowledge of all things blockchain, chances are it is worth delving deeper. If there is a reasonable suspicion that the spouse owns cryptocurrency, then further investigation should be properly considered.

The ultimate goals of the investigation should be to determine:

  1. What cryptocurrency assets the spouse owns;
  2. Locations and/or addresses of applicable cryptocurrency assets;
  3. The combined total value of cryptocurrency assets the spouse owns.

In order to answer these questions accurately, an investigation needs to also address concerns such as:

  1. How much money was invested;
  2. When it was invested;
  3. What exchanges or funding methods the spouse utilised; and
  4. Whetheror not someexchanges and/or services were utilised which were only funded with cryptocurrency (rather than national currency).

Many of these questions can range from difficult to impossible for any non-professional to answer accurately without the necessary blockchain forensics tools, expertise, and contextual knowledge. Trading, deposit, and withdrawal history needs to be assessed as well as how the cryptocurrency assets were transferred and moved over time on the blockchain itself.

Paul advises that the complex technical nature of this investigation, along with a high risk of being unable to identify cryptocurrency (if done by a non-professional), as well as the high risk of false positives, is precisely why he advises family lawyers to consult a blockchain forensics expert specialising in divorce, such as CipherBlade,in such situations. Subject matter expertise and blockchain forensics tools are by-in-large necessary to locate cryptocurrency holdings and ultimately, Paul believes, lead to a much higher rate of success as well as being able to recover a far higher amount on average.

Having a family lawyer who understands the nuances of cryptocurrency is also essential in assisting the client present and explain their concerns to a Judge and ensure that the appropriate action is taken to secure the cryptocurrency for appropriate consideration and division within the financial remedy application. I have explained further about the intricacies of tracing and valuing digital assets here.

 

Natalie Sutherland

Paul Sibenik