In a surprising case that caught the crypto community’s attention, Sarita, a New York housewife, uncovered her husband’s hidden Bitcoin assets during her divorce proceedings.

According to a Saturday report by CNBC, Sarita, who chose to use a pseudonym for her safety, disclosed that she tracked down 12 bitcoins, currently worth close to half a million dollars, in a previously undisclosed crypto wallet owned by her husband after months of investigation and the assistance of a forensic accountant.

As per the report, Sarita, now seeking divorce after a decade in marriage, expressed her shock and feeling of being blindsided by her husband’s cryptocurrency investment. She admitted that although she had heard of Bitcoin, she had little knowledge about it since they had never discussed it or made investments together.

“I know of bitcoin and things like that. I just didn’t know much about it,” she said, adding, “it was never even a thought in my mind, because it’s not like we were discussing it or making investments together…It was definitely a shock.”

Cryptocurrency Tracking in Divorce: A Nightmare

As more and more people get involved with cryptocurrencies, cases of financial infidelity related to digital assets are becoming increasingly sophisticated. Moreover, experts in divorce law concur that the legal system is struggling to keep pace with the complexities of cryptocurrency.

Notably, tracking down hidden cryptocurrency assets during divorces has led to the emergence of forensic investigators specializing in studying and tracking cryptocurrencies owned by spouses.

In a note to CNBC, divorce attorney Kelly Burris explained that due to the decentralized nature of cryptocurrencies, obtaining information through traditional means, such as subpoenas, is often impossible. Instead, forensic analysis of computers or phones is necessary to identify wallet addresses and conduct blockchain analysis.

“The thing with cryptocurrency is it’s not regulated by any kind of centralized bank, so usually you can’t subpoena somebody and get documents and information related to somebody’s cryptocurrency holdings,” said Burris. 

In divorce cases involving cryptocurrencies, investigators pay close attention to hardware wallets, cold storage methods, and the movement of tokens across various blockchains. However, the increasing practice of “chain hopping”, where individuals quickly switch between different blockchains, complicates asset tracking.

Further, the rapid expansion of the cryptocurrency market, and the introduction of privacy tokens, such as Zcash, Dash and Monero, have also made it challenging to conduct forensic investigations since they offer anonymity when conducting transactions. Additionally, some divorcees may also choose to use crypto mixers such as the now-defunct Tornado Cash, making it harder to trace their assets.

That said, as the popularity and complexity of cryptocurrencies continue to grow, it has become clear that the legal system will need to adapt to handle cases involving digital assets effectively. Still, first, clear crypto regulations are needed.

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Filed under: Bitcoin - @ May 27, 2023 6:30 pm