Courts Use Crypto Tools to Divide Digital Assets in Divorce and Inheritance Cases

Cryptocurrencies are increasingly becoming a focal point in high-stakes personal and legal matters, including divorce and inheritance. The core issue at the heart of these cases is the indivisibility of a private key—a string of characters that provides exclusive access to digital assets. Manually splitting a private key is not feasible without risking permanent loss of funds, as the key must remain whole to function [1].

This challenge has led courts in several jurisdictions, including South Korea and the United States, to treat cryptocurrency as an intangible marital asset. When a couple splits, the digital assets they co-own can be divided similarly to property such as real estate or stocks [1]. The complexity arises in how to execute this division without compromising the integrity of the private key.

To address this, several secure methods have emerged to facilitate shared or controlled access to crypto holdings. One such approach is Shamir’s Secret Sharing (SSS), a cryptographic technique that divides a private key into multiple shares. A predetermined number of these shares are required to reconstruct the original key, allowing for shared control without the risk of unilateral access. For example, a couple might split the key into three parts and set a requirement for any two to unlock the wallet [1]. This method offers security, redundancy, and flexibility in situations like divorce, estate planning, or business partnerships.

Another solution is the use of multisignature (multisig) wallets, which require multiple private keys to authorize transactions. These wallets operate on an M-of-N model, where a specific number of keys out of a total set are needed to execute a transaction. For example, a two-of-three setup ensures that no single party can act alone, adding an extra layer of security and fostering cooperation [1]. Multisig is gaining traction in both business and personal contexts, especially where trust is limited or legal oversight is necessary.

In high-conflict scenarios, custodial services or legal escrow agreements can be employed. Here, a neutral third party—such as a law firm or crypto custodian—holds the private key and manages transactions according to a legal agreement. This method ensures transparency, prevents premature asset movement, and enforces legal fairness. It is particularly useful in cases where one party wishes to retain the crypto while the other receives an equivalent value in other forms of assets [1].

Despite its reputation for anonymity, cryptocurrency is not immune to scrutiny. Blockchain forensic tools can trace hidden digital assets during legal proceedings, helping courts uncover undisclosed holdings. For instance, a New York woman recently discovered her husband’s secret Bitcoin stash worth $500,000 during their divorce, highlighting the growing importance of digital asset discovery in family law [1]. Courts are increasingly recognizing the need to adapt their procedures to address the volatility and complexity of crypto as a marital asset.

Beyond divorce, the need to manage and divide crypto access extends to inheritance and business partnerships. Tools like SSS and multisig wallets can be used in estate planning to ensure secure transfer of digital assets to heirs. They also allow for controlled access in family trusts and business structures, ensuring that digital wealth is protected and distributed according to the owner’s wishes [1].

In conclusion, while a private key cannot be split in half, modern cryptographic tools and legal frameworks offer viable solutions for shared or controlled access to cryptocurrency. As digital assets become more integrated into everyday life and legal systems, understanding how to manage them responsibly during major life events is not just beneficial—it is essential [1].

Source: [1] Understanding crypto ownership in divorce and beyond (https://cointelegraph.com/news/understanding-crypto-ownership-in-divorce-and-beyond?utm_source=rss_feed&utm_medium=rss&utm_campaign=rss_partner_inbound)