4 Common Mistakes Lawyers Make with Crypto in Divorce
In the high-stakes arena of modern divorce, cryptocurrency is no longer a niche concern; it is a primary theater for asset concealment. While traditional forensic accounting relies on a paper trail of banks and brokerages, blockchain forensics requires a fundamental shift in strategy.
For the family law attorney, failing to adapt to the nuances of crypto assets doesn't just result in an unfair settlement—it can lead to malpractice risks and significant loss for the client.
Here are the four most common mistakes attorneys make when handling crypto in 2025, and how to avoid them.
1. Relying on Traditional Discovery Methods
Standard discovery requests for all bank and brokerage statements are functionally useless against a spouse determined to hide assets because cryptocurrency exists outside the traditional banking system. If an attorney doesn’t specifically ask for public wallet addresses, hardware wallet serial numbers, and exchange-exported CSVs, they are essentially blindfolded.
The Correction: Discovery must include requests for screenshots of self-custody wallet interfaces (like MetaMask or Trust Wallet) and physical inspections of hardware devices (Ledger, Trezor).
Expert Tip: Look for "breadcrumbs" in bank statements, such as small outgoing transfers to platforms like Coinbase, Kraken, or even PayPal and Venmo, which often serve as the on-ramp to more obscured on-chain activity.
2. Failing to Address Valuation Volatility
Valuing Bitcoin or Ethereum on the date of separation is a gamble that rarely pays off fairly. In the months it takes to reach a final decree, a $1,000,000 crypto portfolio could easily swing to $400,000 or $2,000,000. Using a single, outdated snapshot often leads to one spouse being over-bought or under-paid by the time of distribution.
The Correction: Instead of a cash-out value based on a past date, propose an in-kind distribution. Splitting the actual tokens (e.g., 5 BTC to each spouse) ensures that both parties share the market risk and reward equally until the moment of transfer.
Alternative: Use time-weighted average pricing (TWAP) — averaging the price over the 30 or 60 days leading up to the settlement—to smooth out flash crashes or artificial pumps.
3. Overlooking Tax Basis
Many attorneys believe that because divorce-related transfers are generally tax-free under IRC Section 1041, there is no tax liability to worry about. This is a dangerous half-truth. While the transfer isn't taxed, the cost basis carries over to the recipient.
The Scenario: If Spouse A receives $100,000 in cash and Spouse B receives $100,000 in Bitcoin that was originally purchased for $1,000, Spouse B is actually receiving a massive future tax bill. When they eventually sell, they will owe capital gains on $99,000 of profit.
The Correction: Always factor in any latent tax liability. $100,000 in crypto assets is not equal to $100,000 in cash.
4. Waiting Too Long to Engage a Crypto Forensics Expert
Waiting until the settlement conference to call in a specialist is one of the most expensive mistake an attorney can make. Once a settlement is drafted, it is often too late to subpoena an exchange or perform the deep on-chain analysis required to prove that a spouse routed funds through a mixer or privacy protocol.
The Correction: Engage blockchain forensics early—ideally during the initial intake if crypto is suspected. An expert can perform a pre-discovery analysis to identify the approximate size of the digital footprint and guide the specific wording of your subpoenas and interrogatories.
The 2025 Reality: With the rise of Layer-2 networks and complex DeFi staking, the paper trail is now a code trail. You need an expert who can translate blockchain data into a court-admissible report that a judge can actually understand.
Secure Your Client’s Fair Share
At BlockSquared Forensics, we bridge the gap between complex blockchain data and the courtroom. Don't let your client's future be compromised by a lack of digital visibility. Contact us today for a preliminary consultation.