Bitcoin leaving exchange custody has become a difficult issue in divorce asset division! Why can't courts solve it even with private keys?

As Bitcoin custody becomes more widespread, the gap between legal enforcement and technical capabilities in divorce asset division has emerged. Courts can recognize assets as property but cannot forcibly transfer assets without private keys, creating a disconnect between law and technology.

Mass Shift Toward Self-Custody of Bitcoin Causes Enforcement Gaps in Divorce Asset Division

As more Bitcoin moves away from centralized exchanges into personal wallets or institutional custody, this shift in asset custody methods is beginning to impact divorce and family law practices across various countries.

According to market data, only about 14% to 15% of Bitcoin remains on exchanges, approximately 2.7 to 2.8 million BTC, with the rest fully controlled by individuals via seed phrases or private keys. This means that, in divorce cases, even if the court confirms one party “owns” Bitcoin, as long as the asset is in self-custody, judicial authorities cannot directly transfer or enforce the asset like freezing a bank account.

Law can order parties to disclose assets, and non-compliance may result in contempt of court or adverse rulings, but courts themselves cannot send a Bitcoin transaction without the private key. The technical structure creates a significant gap between “knowing the asset exists” and “actually obtaining it.”

Legal Recognition of Digital Assets as Property but Inability to Generate Private Keys

Legal responses are emerging. For example, in the UK, the Property (Digital Assets etc.) Act 2025 has come into effect, explicitly recognizing certain digital assets as property rights, allowing Bitcoin and other crypto assets to be included in injunctions, tracking, and ownership determinations.

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However, even with legal recognition, the technological reality remains unchanged. Private keys or 12 to 24-word seed phrases are the true keys to control.

Many family law firms in the UK and US point out that, practically, they can only infer the existence of undisclosed crypto assets through bank and tax records, exchange receipts, on-chain analysis, and lifestyle expense comparisons.

If Bitcoin has never been on a KYC platform and is stored entirely in a cold wallet, courts often can only adopt an “adverse inference,” such as adjusting the division ratio of other assets or increasing alimony and litigation costs, rather than directly acquiring the crypto asset. The UK Financial Conduct Authority estimates that by August 2024, about 12% of UK adults have held crypto assets, indicating that such disputes are no longer rare.

Enhancing “Entry” Regulations Still Cannot Solve the Root Problem of Self-Custody

Regulators in recent years have focused on areas where they can exert control.

• The EU’s MiCA and Travel Rule are gradually coming into effect from 2024 to 2025, requiring crypto service providers to collect and exchange transaction information between parties;
• The UK is also advancing formal licensing systems for exchanges and brokers;
• The US plans to implement more comprehensive crypto tax reporting starting in 2026.

On-chain analysis firm Chainalysis states that as long as funds flow through exchanges or regulated platforms, tracking and identification capabilities have significantly improved. However, these measures only “strengthen the entry and exit points” and cannot open a fully offline, personally controlled cold wallet.

For this reason, family law practices are beginning to adopt preventive arrangements such as multi-signature wallets, requiring crypto assets acquired during marriage to be jointly controlled by both parties or a third party, reducing future disputes.

Overall, the trend of Bitcoin gradually moving away from exchanges is reshaping judicial assumptions about asset accessibility, making divorce cases more dependent on incentives and penalties rather than direct asset transfers. For courts, rules can change behavior, but they cannot sign a private key on behalf of the parties.

This article is compiled by Crypto Agent from various sources, reviewed and edited by Crypto City. It is still in the training phase and may contain logical biases or inaccuracies. The content is for reference only and should not be considered investment advice.