Millennials with the most cryptocurrency holdings are reaching the peak of divorce, but the law is not yet prepared.

The biggest problem faced by most parties is: they simply have no idea their spouse holds cryptocurrency.

Written by: Kevin Williams

Translated by: Chopper, Foresight News

TL;TR

• The U.S. legal system (especially divorce law) has failed to keep pace with the rapid development of cryptocurrency, while millennials—who hold the most crypto—are entering the peak period for divorces.
• The division of cryptocurrency is similar to other assets like real estate, with various approaches: direct on-chain splitting of bitcoin and other crypto assets, selling and splitting the fiat proceeds, or offsetting the value of a digital wallet with other assets.
• A crypto asset investigator in Texas says the biggest problem faced by his clients (mostly women) is that they have no idea their husbands have invested in cryptocurrency.

Divorce always brings up thorny issues of dividing marital property. In most cases, the solution is fairly straightforward: the couple’s assets must be divided precisely, though assets like the family dog or an aquarium can’t be split so easily. But if you think the dispute over “who gets the dog” is complicated enough, the challenge of dividing cryptocurrency assets is the real test.

Today, many families have only recently begun accumulating crypto assets, and the recent sharp drop in bitcoin, ethereum, and other crypto assets after hitting all-time highs has shaken investor confidence, making the future of crypto asset division even more uncertain. But for many married Americans, the current price of crypto isn’t even the main issue, because these assets are so easily hidden by one party without the other knowing.

“The trouble caused by cryptocurrency in divorce cases is much like the long-standing issue of offshore accounts, with the difference that crypto assets can be transferred instantly and without a trace,” said Mark Grabowski, professor of cyber law and digital ethics at Adelphi University and author of several books on cryptocurrency. He added that the key issue is that ownership of crypto assets isn’t determined by the name on the account, but by who holds the private key.

“As long as one spouse controls the wallet, they effectively control the assets,” Grabowski said.

Now, lawyers must subpoena exchange records, trace transactions on the blockchain, and determine whether the cryptocurrency was purchased before or after the marriage.

“Due to the lack of transparency and unified reporting standards, it’s easy for one party to hide or underreport their crypto holdings. Courts are still struggling to catch up in this area,” Grabowski pointed out.

Theoretically, the division of crypto assets in divorce should be the same as for other property. Divorce lawyer Renee Bauer, who has handled cases involving crypto asset division, says the core issue in disputes between couples seems simple on the surface: who gets the wallet?

“But this question triggers a series of complexities never encountered in traditional property division,” Bauer said.

The first challenge is to determine the actual holdings of crypto assets.

“Retirement accounts have statements, real estate has clear addresses, but cryptocurrency may be stored on an exchange or in a hardware wallet that one party ‘just happened to forget to mention’,” Bauer explained.

Therefore, tracking crypto assets is part detective work, part digital forensics. Once the assets are verified, the next step is to determine custody.

“Some couples want to keep the digital wallet intact (especially the spouse who managed it during the marriage), while others want a complete monetization and division,” Bauer said.

The courts are still exploring the best way to handle these issues.

“There’s also the security issue: if one party hands over the private key, they’re giving up all control of the asset; if they refuse, the court must decide how to enforce access,” Bauer added.

She recalled a lawyer with little knowledge of crypto who tried to compensate the other party by converting the value of bitcoin into other assets, not realizing this approach is neither simple nor fair.

“Many divorce lawyers have failed to keep up with industry developments and don’t even ask for disclosure of crypto assets. In Connecticut, where I practice, there’s no specific section for cryptocurrency on the financial affidavit. For some people, if you don’t actively investigate, you might miss out on a valuable asset,” Bauer said.

Crypto Asset Investigators: Private Detectives in the Era of Digital Asset Divorce

BlockSquared Forensics is one of the few companies that can help locate hidden crypto assets. Ryan Settles, founder and CEO of this Texas-based company, says demand for their services has grown exponentially since the company was founded in 2023. BlockSquared specializes in handling all matters related to cryptocurrency in family law and divorce cases.

If one spouse (Settles says it’s mostly women) suspects their partner is hiding crypto assets, their lawyer may hire BlockSquared to investigate—from simple asset verification to tracking crypto flows across states and delving into the hidden realms of wallets and exchanges, the company provides all these services. Afterwards, Settles’ team provides clients with a flowchart that details the transfer path of the cryptocurrency, complete with timestamps.

He says the need to investigate whether a spouse holds crypto assets is becoming increasingly common, “especially in high-net-worth divorce cases.”

Ryan Settles, Founder and CEO of BlockSquared Forensics, Texas

Settles points out that millennials hold the most cryptocurrency, and in the next six months, this age group will enter the peak period for divorces. Combined with the increase in crypto holdings, the investigation of crypto assets in divorce cases will only become more common.

Another aspect Settles focuses on is the spouse’s tax liability, ensuring this issue is properly handled during divorce.

“There are a lot of tax-related issues, and most people (even lawyers) are unfamiliar with them,” Settles said. He added that even a single crypto transaction can involve so many taxable events and reporting requirements that even seasoned litigation lawyers may be surprised.

“Most lawyers neither understand the relevant knowledge nor the terminology, and often just trust blindly without ever verifying,” Settles said.

In many of the cases he handles, the wife not only doesn’t know her husband is investing in crypto, but after the assets are finally divided, she may also face a huge tax bill due to capital gains.

“Unlike savings accounts, the value of cryptocurrency can fluctuate dramatically in a single day,” Bauer said. “Selling crypto and splitting the proceeds may trigger capital gains tax; holding the asset may spark new disputes as its value changes.”

The IRS’s reporting requirements for cryptocurrency are relatively lax, which also adds to the complexity of the problem.

“There are so many details involved, and many lawyers just nod and smile, pretending to understand,” Settles said.

But he says clients usually only hire companies like his when there’s good reason to suspect their spouse is hiding a large amount of crypto. The company’s retainer is $9,000, and investigation fees can reach up to $50,000. Settles says their service fees are often higher than those of lawyers.

The Core Legal Challenges of Crypto Asset Division

Roman Beck, professor at Bentley University and head of the Crypto Ledger Lab, says that since this is a relatively new field, the best approach is for courts to divide not the digital wallet itself, but the assets controlled by the wallet.

“The law’s definition of cryptocurrency is not as special as people think. The basic principle is simple: for tax and most property law purposes, cryptocurrency is considered property, not currency,” Beck said.

This means that in divorce cases, bitcoin, ethereum, stablecoins, and NFTs acquired during the marriage are usually considered marital property, no different from brokerage accounts or a second home. The specific division method depends on state law.

“The court is dividing value, not the wallet,” Beck emphasized.

He says the real legal question isn’t “who gets the wallet?” but “how do we allocate the economic value represented by the wallet, and who will take on the technical custody responsibility afterwards?”

This requires courts and lawyers to choose from three approaches: direct on-chain asset splitting, selling and dividing the fiat proceeds, or offsetting with other assets.

“From a technical perspective, a wallet is essentially a set of private keys, usually stored separately on hardware devices, mobile apps, or even as mnemonic phrases written on paper. After divorce, it’s not safe to share hardware wallets or private keys,” Beck explained.

Another complicating factor in crypto divorce cases is the volatility of the underlying assets. The price swings of cryptocurrency make it hard for couples to agree on the timing of division—whether it’s the end of the marriage or the division of digital assets. In just the past two months, bitcoin’s price has dropped from a high of over $126,000 to the $80,000 range, a 35% drop, erasing all gains for the year and fluctuating wildly every day.

If both parties can handle the issue rationally rather than emotionally, one of the simplest solutions is to split the wallet on-chain, create new wallets for each party after the divorce, and let them continue to hold their share of the crypto assets; or sign a legal agreement specifying each party’s share in the same wallet.

“They don’t have to sell the assets immediately,” Beck said.

However, in reality, one party is often unfamiliar with wallet operations and therefore doesn’t trust this solution.

Just as couples may not want to sell jointly owned real estate in a down market, they can agree to have a trusted third party hold the crypto assets and wait to sell until the market improves (reaching a minimum value agreed upon by both parties).

But Beck adds that, although from an economic and technical perspective, divorced couples can clarify their legal rights in any of the above ways and delay liquidation until market conditions improve, the premise is that both parties agree—“and most people just want to get it over with as soon as possible.”

Blockchain Ledger Transparency and Court Proceedings

One positive factor is that, despite cryptocurrency’s reputation as an “anonymous haven,” some features of crypto assets actually facilitate divorce litigation.

“Public blockchains like bitcoin and ethereum are essentially transparent ledgers, with every transaction permanently recorded. In other words, on-chain data analysis makes the blockchain a highly patient financial witness,” Beck said. “As long as you know how to interpret the blockchain, you can find perfect audit trails... The real frontier isn’t the law itself, but forensic technology.”

The popularity of cryptocurrency in the U.S. (recent Gallup and Pew Research Center surveys show that 14% to 17% of American adults have held crypto) is forcing the field of family law to become more data-driven.

“The combination of transparent ledgers and powerful analytical tools gives lawyers and judges unprecedented tools to reconstruct financial behavior—something impossible in the cash era. The policy question for the future isn’t whether we can track, but how much scrutiny courts will require in routine divorce cases,” Beck said.

Even so, this doesn’t mean people will stop trying to hide assets. Settles says he can usually see asset movements on the ledger within 20 minutes.

“They start frantically moving assets, hiding assets, or transferring them to mixing services. It’s quite interesting,” Settles said.

And all these actions are traceable.