7 Common Crypto Frauds That Impact Divorce Settlements

The digital age has introduced unprecedented complexity into divorce proceedings. As cryptocurrencies move from the fringe to the mainstream, they offer a new, sophisticated avenue for spouses to conceal assets, fabricate losses, and obscure financial trails. For legal professionals navigating asset division, understanding these high-tech tactics is no longer optional—it's critical.

Standard financial discovery often fails to uncover these digital deceptions. This is where specialized blockchain forensics becomes essential. At BlockSquared Forensics, we investigate the digital ledger to uncover the truth.

Here are four common crypto-related frauds we see impacting divorce cases.

1. Rug Pulls and Empty Valuations

A "rug pull" is a common scam in the decentralized finance (DeFi) world. Developers create a new crypto token, promote it heavily to attract investors, and then abruptly abandon the project, draining the funds and leaving the token's value at zero.

In a divorce scenario: A spouse may claim they "invested" a significant amount of marital assets into a promising new token, only for it to be a "rug pull." They present a wallet full of worthless tokens as a total loss. However, the story may not be that simple. An expert is needed to trace the initial funds. Was the investment legitimate, or was this a coordinated effort to simulate a loss while the original funds were simply moved to a different, undisclosed wallet?

2. DeFi Exploits and Fake Losses

Decentralized Finance (DeFi) protocols, while innovative, can be vulnerable to hacks and exploits. A spouse could claim to have lost substantial assets that were locked in a protocol that was unfortunately hacked.

In a divorce scenario: While such exploits are real, this claim can also be a convenient lie. A tech-savvy spouse could stage a fake exploit or purposefully interact with a malicious contract to create the appearance of a theft. In reality, they may have simply moved the funds to an unlinked wallet, creating a fabricated loss to shield assets from division. A forensic expert must analyze the blockchain transactions to confirm or debunk the "hack" narrative.

3. The Lost Seed Phrase Lie

A seed phrase is a series of words that acts as the master key to a crypto wallet, allowing access to all the funds within it. If the seed phrase is lost, the wallet and its contents are, for all practical purposes, inaccessible.

In a divorce scenario: A spouse might claim they "lost" their seed phrase to a wallet containing valuable crypto assets, rendering it impossible to retrieve them. While this can genuinely happen, it is also an increasingly common ruse to hide assets in plain sight. An expert can investigate digital records—examining laptops, phones, cloud storage, and password managers—to see if the phrase was ever recorded, stored, or backed up, helping to determine if the claim is legitimate.

4. Money Laundering Through Tumblers and Mixers

Crypto tumblers or mixers are services designed to enhance anonymity. They work by blending a user's crypto with a large pool of other users' crypto, effectively breaking the chain of custody and obscuring the original source of the funds.

In a divorce scenario: A spouse could send marital assets through a mixer to make them untraceable before moving them to a new, secret wallet. This is a deliberate act of obfuscation, analogous to traditional money laundering. This is a highly technical topic that few lawyers understand. BlockSquared Forensics is positioned to handle these high-stakes, high-tech cases, tracing funds through these complex services to provide clarity.

5. NFT Valuation Fraud & Collusive Sales

Non-Fungible Tokens (NFTs) introduce a concealment method based on subjective valuation. Unlike Bitcoin, which has a clear market price, the value of an NFT (like digital art) is highly speculative and illiquid. A spouse can exploit this ambiguity.

In a divorce scenario: A spouse could use marital funds to purchase an NFT for $250,000. During discovery, they claim the "crypto art market has crashed" and the piece is now worthless, or they get a "friendly" appraisal for a fraction of its cost.

Even more deceptively, they could perform a collusive "sale"—transferring the $250,000 NFT to a friend's anonymous wallet for a sham payment of $1,000. It appears as a "loss," but they have a private agreement to get the asset back after the divorce is finalized. An expert must analyze both the on-chain transfer and the nature of the NFT itself to determine if its declared value is legitimate or a fabrication.

6. Obscuring the Trail with Privacy Coins

While Bitcoin transactions are public, specialized Privacy Coins (like Monero and Zcash) are designed to be completely anonymous and untraceable.

In a divorce scenario: A spouse can move marital Bitcoin from a known exchange (like Coinbase) to an anonymous wallet. From there, they use a "no-KYC" (Know Your Customer) exchange to swap that Bitcoin for a privacy coin. The funds essentially "go dark." The spouse can then hold these untraceable coins or slowly convert them back to cash using international exchanges or crypto debit cards. This is a deliberate, high-tech laundering technique that requires a sophisticated forensic expert to even identify that it has happened.

7. Fabricating Debts with DeFi Loans

This tactic moves beyond hiding assets to creating fake liabilities to offset the marital balance sheet. A spouse can create what appears to be a legitimate loan from a third party, which must be "repaid" with marital funds.

In a divorce scenario: A spouse could arrange for a friend to send them 5 ETH, creating an on-chain record. They then sign a (potentially back-dated) loan agreement, claiming this was a personal loan that is now due. They argue that 5 ETH, plus "interest," must be paid back to the friend from the marital estate before assets can be split.

In reality, this is a collusive transfer designed to siphon funds to an ally. An expert must investigate the "lender's" wallet and the context of the transaction to determine if it was a bona fide loan or a fraudulent conveyance.

Your Partner in Digital Discovery

These examples represent just the tip of the iceberg. As crypto adoption grows, so will its use in contentious divorce cases. Relying on a spouse's self-reporting is no longer sufficient.

To ensure an equitable and fair division of all marital property, legal professionals must partner with experts who can navigate the complexities of the blockchain. BlockSquared Forensics provides the deep investigative expertise required to validate claims, trace digital assets, and uncover the truth hidden on the blockchain.