Five Things Every Divorce Professional Needs To Know About Cryptocurrency and Divorce

An interview with Ilyssa Panitz

The money, the money, the money. That is what it all boils down to during a divorce. As times have changed, in terms of how we do business…i.e. ZOOM, email, and text, so too are the ways people are hiding cash and income from their spouse. Thanks to the advances in modern technology, Cryptocurrency has become a popular and sneaky way people are stashing earnings and portions of their salary. These funds are stored in an account called a blockchain and that blockchain cannot be traced to a certain individual or owner without what is known as a private key, “aka” a password. According to reports, as of 2021, approximately 20-million people own this digital currency and the challenge for legal professionals becomes, what is the cost analysis for finding it, and if it’s too expensive, why it may be in a client’s best interest to walk away, even if it is deemed marital. Nick Nimonidis is the founder and CEO of The NGH Group, in Melville, New York. His firm provides high-tech investigations, digital forensics, cryptocurrency, and blockchain forensics, e-discovery, expert witness, and other consulting services to attorneys, corporations, and private clients. Nick is also a licensed Attorney, licensed Private Investigator, Certified Fraud Examiner (CFE), Certified Computer Forensic Specialist (CCFS), Certified Cryptocurrency Forensic Investigator (CCFI), and court qualified Expert Witness on the field of digital evidence.

Ilyssa Panitz: What is cryptocurrency and why is it playing a big role in so many divorce disputes?  

Nicholas Himonidis: Investopedia defines cryptocurrency as “a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.”  A far more relevant definition or explanation for our purposes is that cryptocurrency is a digital currency that has no physical form, it usually operates through decentralized blockchains maintained by private parties all over the world (who are not vetted or approved by anyone), it is not tied to the currency of any government(s), it can be transferred from person to person in minutes without the involvement of any financial institutions, it cannot be effectively regulated by any government and it is beyond the reach of any government authority, including the courts.       

Ilyssa Panitz: At what point in a case, that involves a cryptocurrency issue are you asked to get involved and what does your role entail?

Nicholas Himonidis: My firm gets involved in a wide variety of cases involving cryptocurrency. In the context of divorce cases, we often get involved after one party discovers that the other party has cryptocurrency holdings and requires assistance to verify the existence of those assets, figure out where they came from and when, and how much they are currently worth. We are sometimes asked to assist one party in getting set up to receive cryptocurrency from the other party as part of a settlement or court ordered transfer of assets.  We are frequently asked to investigate whether a party has any, or any “additional undisclosed” cryptocurrency assets, which can be a very complex undertaking. Sometimes, we are appointed by the court as a neutral cryptocurrency expert to do some or all the above.

Ilyssa Panitz: What are the biggest challenges you face when you are looking, tracking, and investigating cases that involve cryptocurrency?

Nicholas Himonidis: Cryptocurrency is fundamentally different than any type of currency or asset that has ever existed before. There are basically two ways to engage in cryptocurrency transactions: through a custodial exchange or peer to peer (P2P).  If a party uses a custodial exchange, the unique nature of cryptocurrency is much less of an issue, because the exchanges (at least U.S. based exchanges) keep detailed records on their customers in compliance with KYC (Know Your Customer) and AML (Anti Money Laundering) laws. These exchanges are legitimate businesses and can be subpoenaed for information. If a party knows or suspects their spouse is engaging in cryptocurrency transactions/holding cryptocurrency, it is easy enough to subpoena the major U.S. based exchanges to find out if they have any account records for the spouse. The real problem comes in with P2P. By its nature, cryptocurrency does not need to be bought, sold, or transferred through an exchange it can be transacted entirely peer to peer. In this context it is the virtual equivalent of one party handing the other party cash money except it is done in a virtual ecosystem without the parties ever having to meet physically and without the security risks and dangers (including legal dangers) associated with moving large sums of cash money. If a party is transacting entirely P2P there is no ‘paper trail’ anywhere for anyone to find and there is literally no institution or entity that can provide any records about that person’s transactions (or put a hold on those transactions). When people are trying to hide assets or conduct illicit transactions it is most often done P2P, which makes it very difficult, but not impossible, to investigate.   

Ilyssa Panitz: Is cryptocurrency easy to hide from opposing counsel?

Nicholas Himonidis: Even if opposing counsel is fastidious about doing financial discovery, and does a very thorough job, it is unlikely that they would uncover undisclosed cryptocurrency assets unless: One: someone has tipped them off to look for these assets and two: they have enlisted the help of expert(s) who know how to identify these assets.

Ilyssa Panitz: Where do you look for evidence that a cryptocurrency account exists?

Nicholas Himonidis: There are basically four ways to obtain cryptocurrency:
One: Buy it.
Two: Mine it.
Three: Steal it.
Four: Receive it in exchange for goods or services. 

If a party bought it, there should be a record in their banking records somewhere of either large cash withdrawals or payments to a cryptocurrency exchange or platform (such as Coinbase or Kraken). Someone who knows what to look for needs to examine the party’s financial statements for this evidence. If a party mined cryptocurrency, they need highly specialized, very powerful computing hardware to do so with even a modest chance of success financial statements and invoices need to be scrutinized for evidence of purchasing or leasing this type of equipment. Physical searches for this kind of equipment should also be made at any place the party might be able to have such a set up. Excessively high electric bills at the party’s office, or other locations, may also be evidence they are mining cryptocurrency. If a party is receiving cryptocurrency in exchange for goods or services, it may be incredibly difficult to find evidence of depending on how careful they are and what type of ‘goods or services’ we are talking about. If for example, the party is in a legitimate business, they may be set up to receive cryptocurrency funds through a service like Bitpay, a legitimate company that keeps records and can be subpoenaed. If the party is accepting cryptocurrency for illicit goods or services (other legal issues aside) we would look to the Dark Web for evidence of their activity. In addition to all of this, we recommend searching the home and other location for hardware wallets (devices that provide cold/offline storage for cryptocurrency you can find photos of the most popular hardware wallets online simply by searching hardware wallet in Google and clicking on images. If we have access to the party’s computing devices or data, we can conduct forensic searches for cryptocurrency addresses, wallet software, recovery seeds and many other forms of evidence that the party is engaging in cryptocurrency transactions.      

Ilyssa Panitz: What are five things every divorce professional needs to know about cryptocurrency and divorce? 

Nicholas Himonidis: One: Talk to legal counsel about collecting and preserving all legally available computing data from the marital domain before filing divorce and serving the other party.

Two: Search for physical evidence of cryptocurrency activity including hardware wallets, recovery seeds (12-24 random words written on paper or ‘crypto steel’ in a particular order); paper wallets, mining hardware before filing for divorce.

Three: Make sure your counsel includes specific demands for information about cryptocurrency in their discovery demands.

Four: Plan to subpoena all (or at least the top 10 or 20) U.S.based cryptocurrency exchanges as soon as possible after filing the divorce case for information on any account(s) in the other party’s name.

Five: Engage an expert in cryptocurrency investigation to assist you and your counsel.