Millennial crypto holders face divorce surge, but laws aren't ready
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Millennial crypto holders face divorce surge, but laws aren't ready
In divorce cases, Bitcoin, Ethereum, stablecoins, and NFTs acquired during the marriage are typically considered marital property, no different from brokerage accounts or a second home.
Navigating Web3 tides with focused insightsBy: Kevin Williams
Translation: Chopper, Foresight News
TL;DR
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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 a peak period for divorces.
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Cryptocurrency division is similar to other assets like real estate and can be handled in various ways: direct on-chain splitting of crypto assets such as Bitcoin, selling and dividing fiat proceeds, or offsetting the value of digital wallets through other assets.
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A Texas-based crypto asset investigator says the biggest issue his clients (mostly women) face is having no idea their spouse holds cryptocurrency investments.
Divorce always brings complicated marital asset division issues. In most cases, solutions are straightforward—assets must be precisely divided—but certain possessions like family pets or fish tanks can't be split cleanly. However, if you think disputes over pet custody are complex, cryptocurrency division presents an entirely new level of challenge.
Many households have only recently accumulated crypto assets, and recent sharp declines in Bitcoin, Ethereum, and other cryptocurrencies after hitting all-time highs have shaken investor confidence, further clouding the path forward for asset division. But for many married Americans, current crypto prices aren't even the main concern—these assets are easily hidden by one spouse without the other's knowledge.
"Crypto troubles in divorce mirror long-standing offshore account issues, except crypto enables instant, traceless transfers," said Mark Grabowski, professor of cyber law and digital ethics at Adelphi University and author of several books on cryptocurrency. He added that ownership isn't determined by an account name but by who controls the private key.
"Whoever controls the wallet effectively controls the assets," Grabowski said.
Today, lawyers must subpoena exchange records, trace transactions on the blockchain, and determine whether cryptocurrencies were acquired before or during the marriage.
"Due to lack of transparency and standardized reporting, it’s easy for one party to conceal or underreport holdings. Courts are still struggling to catch up," Grabowski noted.
In theory, crypto-related divorce settlements should follow the same principles as other property. Divorce attorney Renee Bauer, who has handled crypto division cases, says the core dispute appears simple on the surface: Who gets the wallet?
"But this question leads to complications never seen in traditional asset division," Bauer said.
The first challenge is uncovering actual crypto holdings.
"Retirement accounts come with statements, real estate has clear addresses, but crypto might sit on an exchange or in a hardware wallet one spouse 'conveniently forgot to mention,'" Bauer explained.
Thus, tracking crypto becomes a mix of detective work and digital forensics. Once verified, the next step is determining custody.
"Some couples want to preserve the digital wallet intact—especially if one managed it during the marriage—while others prefer full monetization and division," Bauer said.
Courts are still figuring out the best approach.
"There are also security concerns: handing over a private key means giving up complete control; refusing to share it forces courts to decide how to enforce access," Bauer added.
She recalled one lawyer unfamiliar with crypto attempting to compensate the other spouse by offsetting Bitcoin’s value against other assets—unaware that doing so was neither simple nor fair.
"Many divorce attorneys haven’t kept up with industry developments and don’t even request crypto disclosures. In my state of Connecticut, financial affidavits lack dedicated fields for crypto. For some, failing to actively investigate could mean missing out on valuable assets," Bauer said.
Crypto Asset Investigators: Private Detectives for the Digital Age of Divorce
BlockSquared Forensics is one of the few firms helping locate hidden crypto assets. Since its founding in 2023, demand for its services has grown exponentially, said Ryan Settles, CEO and founder of the Texas-based company. BlockSquared specializes in handling cryptocurrency matters within family law and divorce cases.
If one spouse (Settles says mostly women) suspects their partner is hiding crypto assets, their attorney may hire BlockSquared—to verify holdings or conduct cross-jurisdictional tracing across exchanges and deep into wallet ecosystems. Settles’ team then provides clients with flowcharts detailing the movement of crypto, complete with timestamps.
He said inquiries about spouses' crypto holdings are becoming increasingly common, "especially in high-net-worth divorces."
Ryan Settles, Founder and CEO of BlockSquared Forensics, Texas
Settles pointed out that millennials own the largest share of crypto, and over the next six months, this demographic will enter a peak divorce phase. Combined with rising crypto adoption, tracking digital assets in divorce will become more widespread.
Another area Settles focuses on is spousal tax liability, ensuring proper handling during divorce proceedings.
"There are numerous tax implications that most people—even lawyers—are unfamiliar with," Settles said. He added that even a single crypto transaction may involve multiple taxable events and reporting requirements that could surprise seasoned litigators.
"Most lawyers don’t understand the concepts or terminology—they often just nod and smile, trusting without verifying," Settles said.
In many cases he handles, wives not only didn’t know their husbands invested in crypto but may later face massive tax bills from capital gains once assets are finally divided.
"Unlike savings accounts, crypto values can swing wildly within a day," Bauer said. "Selling crypto to divide proceeds may trigger capital gains taxes; holding the asset could spark new disputes when prices change."
The IRS's relatively lenient reporting requirements for crypto further complicate matters.
"There’s so much nuance that many lawyers just pretend to understand," Settles said.
Still, he noted clients usually only hire firms like his when there’s strong reason to suspect significant hidden crypto. The firm charges a $9,000 retainer, with investigation costs reaching up to $50,000—often exceeding legal fees, according to Settles.
The Core Legal Challenge of Crypto Asset Division
Roman Beck, professor at Bentley University and director of the Blockchain Lab, said the best approach—given this is a relatively new field—is for courts to divide not the digital wallet itself, but the value it controls.
"The legal treatment of cryptocurrency isn’t as unique as people think. The basic principle is simple: in tax and most property laws, crypto is treated as property, not currency," Beck said.
This means Bitcoin, Ethereum, stablecoins, and NFTs acquired during marriage are typically considered marital property—no different from brokerage accounts or second homes—with division methods depending on state law.
"Courts don’t divide wallets—they divide value," Beck emphasized.
The real legal question isn’t “Who gets the wallet?” but “How do we allocate the economic value represented by the wallet, and who assumes technical custody afterward?”
This requires courts and lawyers to choose among three options: direct on-chain asset splitting, selling and dividing fiat proceeds, or offsetting with other assets.
"Technically speaking, a wallet is essentially a set of private keys, often stored across hardware devices, mobile apps, or even written-down recovery phrases. After divorce, securely sharing a hardware wallet or private key is impractical," Beck explained.
Another complicating factor in crypto divorce cases is the volatility of underlying assets. Price swings make it difficult for couples to agree on timing—whether dividing the relationship or the digital assets themselves. Over just the past two months, Bitcoin dropped from over $126,000 to around $80,000—a 35% decline—erasing all year-to-date gains amid daily volatility.
If couples can handle things rationally rather than emotionally, one of the simplest solutions is splitting the wallet on-chain—creating separate wallets so each party retains their share—or signing legal agreements defining proportional rights within a shared wallet.
"They don’t need to sell immediately," Beck said.
In practice, however, one party often lacks technical familiarity, making such arrangements unappealing.
Similar to jointly owned homes that couples may hesitate to sell during downturns, they can instead place crypto in escrow with a trusted third party, selling only when market conditions improve (reaching a pre-agreed minimum value).
Beck added that although economically and technically feasible, delaying liquidation until better market conditions requires mutual agreement—"and most people just want to settle quickly."
Blockchain Ledger Transparency and Court Proceedings
A positive aspect is that despite crypto’s reputation as an “anonymity haven,” certain features actually aid divorce litigation.
"Public blockchains like Bitcoin and Ethereum are inherently transparent ledgers—every transaction is permanently recorded. In other words, blockchain analytics turns the ledger into an extremely patient financial witness," Beck said. "With the right skills, perfect audit trails emerge... The frontier isn’t law itself, but forensic technology."
Increasing crypto adoption in the U.S.—surveys by Gallup and Pew Research Center show 14% to 17% of American adults have held crypto—has pushed family law toward greater data reliance.
"Combining transparent ledgers with powerful analytical tools gives lawyers and judges unprecedented capabilities to reconstruct financial behavior—something impossible in the cash era. The future policy question isn’t whether we can track, but how deeply courts will require scrutiny in routine divorce cases," Beck said.
Even so, attempts to hide assets persist. Settles said he can often spot suspicious movements on the ledger within 20 minutes.
"They start panicking—transferring, hiding, or sending funds into mixing services. It’s quite fascinating," Settles said.
And these actions are all traceable.
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