Investigations of cryptocurrency-related cybercrime and expert witness work in cryptocurrency-related litigation have been the most common types of cases Cryptoforensic Investigators has been retained to handle in the past. However, divorce matters related to cryptocurrencies also represent an frequent area that we’ve been engaged on. To date our staff have work on over a hundred divorce cases as a consultant, investigator, expert witness, or single joint expert.
In most cases, it is an engagement by a single party (call them ‘Party A’) going through a divorce (or an attorney acting on their behalf) who has no detailed (or often even basic) knowledge of cryptocurrency assets controlled by their spouse (call them ‘Party B’). Typically, Party A has little or no access to relevant records or statements about where Party B’s cryptocurrencies may be stored or held and has little or no general knowledge about cryptocurrencies.
In one type of case, Party A is acting on a suspicion or belief that their spouse is attempting to hide assets in the form of cryptocurrency, and often a significant amount (up to several million dollars’ worth).
In other cases, however, the person has no specific reason to believe that their spouse is being deceitful, but simply wishes for transparency and an independent review and assessment of the situation which they themselves feel ill-equipped to fully understand, so as to ensure that everything is properly accounted for.
Traditional Expert Model & Process
In most divorce cases that Cryptoforensic Investigators is retained to assist in, the party who wants to hire our firm holds no cryptocurrencies of their own and has limited or no access to any records about their spouse’s presumed cryptocurrency holdings. Typically, the other spouse has exclusive access and knowledge of the actual cryptocurrency holdings.
Cryptoforensic Investigators is usually brought in during the discovery stage of the proceedings. This is often because the client realizes early on that they do not have the knowledge and experience to deal with the matter, or they find that once initial discovery documentation is available, they cannot fully make sense of it. Sometimes no disclosures related to cryptocurrencies are made at all and the client, while still having reason to believe that cryptocurrencies are in play, may not know what, exactly, to even ask for.
In virtually all divorce matters, our first action is therefore to gain an objective understanding of the situation, review materials that have been disclosed (if any), and provide guidance on what further disclosures should be requested of the counterparty or third parties.
We speak very much from experience here: so far, we have not been involved in any divorce matters in which the initially provided documentations and disclosures would have been sufficient to allow a full independent verification of all reported or contentious cryptocurrency holdings. Some additional documentation and details will therefore inevitably need to be requested, and the process can take time to play out.
Most of the divorce cases that we have been engaged on have gone relatively smoothly or in an acquiescent manner, but some have been much more contentious.
The reality is that under the traditional model, the process can require a considerable amount of time and expenses as a consequence of significant amounts of additional arguments, back-and-forth between parties and their counsel, motions filed by attorneys for both sides, and subpoenas to third parties.
As but one complication, requests for data from Party B made by us can often get lost in legalese translation. For instance, it is not uncommon for opposing counsel to object to such production requests and suggest that ‘passwords’ and ‘private keys’ are being requested even though we would never suggest disclosing this kind of confidential cryptographic information in a divorce matter. Such confusions stem ultimately from a lack of concrete understanding about what, exactly, is being requested and what something like a ‘private key’ actually is – understanding which Party B likely has, but may not, for example, have conveyed to their attorney.
All of this can end up dragging out the process and adding on unnecessary costs for both sides – even more so, of course, if a party is less than cooperative, or even obstructive.
Some common strategies that uncooperative parties might employ include the following:
- Claiming that requested documentation or records simply cannot be obtained (almost never true)
- Claiming that adequate documentation or records have already been provided
- Claiming that records and documentation that have been requested have already been provided
- Continual filings of motions or objects alleging that providing requested records (such as an account statement from a cryptocurrency exchange) would be ‘overly burdensome’
- Allegations that providing public addresses or public wallet information would compromise the security of the wallet (which is of course false)
- Wilful misunderstanding or twisting of words and consequent attacks on a ‘strawman’
Only once the required degree of disclosure (not always full disclosure!) is obtained is an expert is then in a position to comprehensively analyze and evaluate the cryptocurrency holdings or activity of interest and to provide a report detailing our findings, if requested.
The Single Joint Expert Model
The Single Joint Expert (SJE) Model in a divorce matter involving cryptocurrency involves one expert acting jointly for both parties instead of just for one party, instead of the expert acting only for one party (and possibly an opposing expert for the other party, although in our experience, this is not overly common in divorce cases anyway).
There are some advantages and disadvantages to having a single joint expert in a divorce case.
Advantages of the SJE Model in Divorce Cases Involving Cryptocurrency
- Faster process as relevant information is communicated and received from both sides
- Less costly for both parties, especially in terms of legal fees
- Smoother process less likely to result in tension or disagreement between the parties
- Both sides can ask questions of the expert more readily to clear up misunderstandings or fill knowledge gaps as the expert is equally available to both
Disadvantages of the SJE Model in Divorce Cases Involving Cryptocurrency
- Since the expert serves both sides equally, they will not be in a position to offer strategic advice to clients or their counsel that would be useful in building their individual case.
- Sometimes, one or both sides lack the requisite knowledge of cryptocurrencies and understanding of the technical aspects of the matter at hand that would enable them to effectively formulate questions to the expert, which could put them at a disadvantage.
- Parties may fail to agree on instructions to the expert or may settle on instructions that prove less meaningful than intended during the process. However, sufficiently open-ended engagements which focus on the goal to be achieved, rather than the process, are effective at averting flawed, misinformed or generally ineffective instruction.
- The expert appointed as the SJE may not be competent in the requisite domain. Since both sides will usually propose one or more candidates as their preferred expert, if one side wants to manipulate the situation in their favor, they may propose someone whose experience appears superficially relevant, but who in reality may not be sufficiently qualified or knowledgeable of the subject matter. This, for example, would apply to the vast majority of traditional forensic accountants, who fail to appreciate how fundamentally different the challenges posed by cryptocurrencies are from those encountered in reviewing other financial transactions.
Situations Where a Single Joint Expert Model Won’t Work
There are, of course, some situations where having a SJE simply will not work or is ill-advised. If the matter is highly contested or if there is reason to believe that one side may try to be obstructive or manipulative, then we believe that opting for the SJE model is usually not advisable.
The model works much better when the parties are cooperative and genuinely interested in resolving the situation quickly and efficiently. But this is not always the case – as some attorney with experience in family law cases can attest, one strategy that the wealthier party may employ is to drain the financial resources of the counterparty and force them to abandon or at least postpone the matter or settle on unfavorable terms.
In addition, because Party B (the party with cryptocurrencies) usually knows more about cryptocurrencies from a technical perspective, there are situations where Party A may deliberately want to hire their own expert because they ‘don’t know what they don’t know’ and want strategic technical advice on the situation, or want to know for themselves whether certain claims (made by either party) are true, false, or somewhere in-between.
Note: Nothing in this article is to be construed as legal advice or legal opinion.