The rise of crypto has added an extra layer of complexity to divorce proceedings. Unlike traditional bank accounts or investment portfolios, crypto assets can be harder to trace, easier to conceal, and often overlooked in the discovery process. To protect your client’s interests, it’s critical to understand the red flags. Below are 14 ways a spouse might try to hide cryptocurrency during divorce proceedings.

1) Exchanges

• Digital platform where individuals can buy, sell, and trade cryptocurrencies (i.e. Bitcoin, Ethereum, etc.). It works similarly to a stock exchange, but instead of trading stocks, users trade digital assets
• The well known: Coinbase, Kraken, Gemini, Binance.US, etc.
• The lesser known (and lesser regulated): KuCoin, Binance, OKX, etc.
• Lesser regulation combined with geographical jurisdiction limitations could impact responsivity (when reaching out for the purpose of a divorce case)

2) Hardware Wallets

• Provide offline storage (aka cold storage): Keeps crypto keys disconnected from the internet, making them highly secure against online hacks.
• When transacting, the individual connects the device to a computer or phone. The transaction is signed on the device, not the internet-connected device.
• Even if the hardware wallet is stolen, it’s useless without the individual’s PIN or recovery phrase.
• Physical wallet examples: Ledger, Trezor, etc.
• Safety deposit boxes, home safes, USB drives, etc.

3) Trusted Third Parties

• Regulated third parties that store and manage digital assets on behalf of individuals, institutions, or funds
• Regulated and licensed (i.e., by NYDFS, or equivalent), typically provide cold storage security and insurance coverage against theft or loss, may be auditable and may have financial reporting standards, and provide multi-signature controls and role-based access
• Examples: BitGo, Anchorage Digital, etc.

4) Custodial & Non-Custodial Wallets

• With custodial wallets, the wallet provider holds an individual’s private keys (meaning the individual does not fully control their crypto assets).
  • You may have heard the phrase, “Not your keys, not your coins.”
• Examples: Coinbase, Kraken, Gemini
• With non-custodial wallets, the individual holds their own private keys.
• Examples of browser-based or mobile wallets: MetaMask, Trust Wallet, Exodus, etc.
• Seed phrases can be written on paper or stored in password managers

5) Shell Wallets

• Created to hide ownership (similar concept to a shell company)
• Used to park or move funds outside of view (especially during divorce proceedings)
• No identifiable name, KYC (“Know Your Customer” – identity verification), or documentation

6) DeFi Platforms

• Also known as DEXs, or Decentralized Exchanges
• Operate without a central authority allowing peer-to-peer trading directly from crypto wallets.
• e.g., liquidity in Uniswap

7) Staking Protocols

• Blockchain mechanisms that allow individuals to lock up (or “stake”) their cryptocurrency tokens to help secure the network and validate transactions, typically earning rewards in return.
• Examples: staked ETH in Lido and positions held in Aave, Compound, Curve, etc.

8) NFTs & Digital Collectibles

• A Non-Fungible Token (NFT) is a unique digital asset stored on a blockchain that represents ownership or proof of authenticity of a specific item (e.g., art, music, videos, collectibles, virtual real estate)/
• Not always disclosed in proceedings
• Oftentimes intentionally undervalued in disclosures
• Not as obvious to consider a “financial asset”

9) Transfers to Third Parties

• Sent to a friend or family member – often with agreements in place to return the funds to owner once the divorce proceedings have concluded

10) Coin Mixing

• aka “crypto mixing” or “tumblers” – e.g., Tornado Cash
• Method used to obscure the trail of crypto transactions on the blockchain
• Makes tracing ownership of assets more difficult

11) Privacy-Focused Coins

• e.g., Monero (XMR) or Zcash (ZEC) – harder to trace

12) Business Holdings

• Assets held in a business entity’s treasury
• May claim it’s not “personal” wealth

13) Decentralized Autonomous Organizations (DAOs)

• A digital co-op of sorts
• Assets could be stored in treasury and hard to value or liquidate

14) Registered Under Alternate Accounts

• Accounts originally registered under a friend’s, relative’s, or business’ name to prevent tracing back to actual holder

Learn More About Crypto’s Growing Role in Divorce Cases

At Crossover Capital, our number one goal is to provide people with the support, knowledge, and access to make informed decisions about their financial futures. Building a foundation for success starts with steady support and a customized approach. Crossover Capital is here to provide the necessary tools we believe are required for growth and to be a champion for our clients’ success.

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Investment advisory services offered through Crossover Capital Brands, LLC (dba Crossover Capital), a Registered Investment Advisor with the U.S. Securities and Exchange Commission.

This material is intended for informational purposes only. It should not be construed as legal or tax advice, and is not intended to replace the advice of a qualified attorney or tax advisor. This information is not an offer or a solicitation to buy or sell securities. The information contained may have been compiled from third party sources, and is believed to be reliable.

Alternative investments – such as hedge funds and private equity/venture capital funds – are speculative and involve a high degree of risk. Likewise, the emergence of digital assets comes with its own speculative characteristics and involves a high degree of risk. Various digital assets have unique features, and the regulatory risk environment continues to change as governance requirements, rules, and lawsuits emerge. There may be material differences in the type of marketplaces available for digital assets, and there could be significant restrictions or limitations on withdrawing from or transferring these types of investments. Digital assets may incur higher fees when compared to traditional assets, and these expenses may offset returns.

Crossover Capital may not be able to independently verify digital asset valuations provided by institutions that hold or offer digital asset services. As a result, Crossover Capital will generally rely on information reported to it by third parties. As such, the information contained herein is for informational purposes. Clients should recognize that they may bear digital asset-based fees and expenses at the manager-level, as well as indirect fees, expenses, and performance-based compensation for digital assets. Spot bitcoin exchange-traded products were recently approved for listing and trading by the SEC. However, such approvals do not indicate SEC approval to use or invest in bitcoin. Clients should remain cautious and aware of the various risks associated with digital assets that have a value tied to bitcoin or other crypto related products.