Digital and Virtual Assets in Divorce
by Chris Meuse
The digital revolution has been upon us. A recent poll conducted by the company McAfee found that, in the U.S., people value their digital assets at nearly $55,000.00; nonetheless, digital and virtual assets are often overlooked or go unvalued in divorce. As our daily lives are increasingly played out on digital and virtual landscapes, family law practitioners need to start thinking about digital and virtual assets when assessing marital estates.
The first step, as with any asset in divorce, is determining whether a party has any digital or virtual assets and identifying those assets. Digital assets are intangibles that only exist in a digital form (i.e. data in the form of binary digits). Such assets may include: email and social network accounts; websites; domain names; digital media, such as pictures, music, e‑books, movies, and video; blogs; reward points; digital storefronts; artwork and data storage accounts. These assets, although intangible, are marital property and are subject to characterization, valuation and division, during divorce.
Virtual assets are intangibles used in virtual worlds or massively multiplayer online role-playing games (MMORPGs for short). Popular, online communities, such as World of Warcraft, Second Life and Entropia, draw millions of users worldwide, who spend billions of dollars each year within these virtual realms. In 2009, 3.8 billion dollars were spent on MMORPGs, with over $100 million going towards virtual assets in these online communities. These assets range from virtual pets; avatars; accessories for those avatars (clothing, weapons, etc.); prizes; virtual real estate; to virtual currency. The popularity of these virtual worlds and games is only growing, and family law attorneys must realize these assets are out there and should start asking if they are a part of marital estates.
After a digital or virtual asset is identified, its separate or community property character must be determined, as well as its value. Since this is still an emerging issue, national case law is sparse on what divorce courts are doing with digital and virtual assets; however, there is no indication that a digital or virtual asset would be characterized differently than a tangible asset. Thus, Texas courts may apply characterization techniques and law, such as tracing and inception of title, as if the digital/virtual asset were any other tangible property. For example, if a blog was started during the marriage, it should be considered community property. If a blog were started before the marriage, but it was monetized and produced income during the marriage, that income would likely be considered community property. And, if the spouse who did not come into the marriage with that blog contributed to it by posting to it, editing it, or advancing it in any way, the community estate may have a reimbursement claim against the other spouse’s separate property estate for increase in value to that blog.
How one values a digital or virtual asset varies, depending on the asset. Many personal, digital assets, such as photos or videos, have little to no market value but have great sentimental value to parties. Other digital assets, such as websites, personal blogs, or domain names can have great value. For instance, the most expensive domain name ever sold, vacationrentals.com, went for $35 million in 2007. Many web-based services are available to value digital assets, and many of those same services can be used to sell such assets. The value of virtual assets can often be determined in the virtual marketplace. Thousands of transactions take place daily for virtual goods, and like digital assets, the value of virtual goods should not be underestimated. In 2010, for example, a virtual nightclub, Club Neverdie, ran by Jon Jacobs in the virtual Entropia Universe (a virtual world with a real-cash economy) sold for $635,000.00.
After a digital or virtual asset is identified and its character and value determined, parties must still figure out how to assign or divide that asset. Some digital assets, such as airline miles or membership points, can be transferred. Other digital assets, like digital photos or videos can be copied. But some assets, like e-books or other digital media files cannot be transferred. When parties own digital or virtual assets that cannot be transferred or copied, practitioners must value such assets, award them to one party, and provide value to the other party, in lieu of those digital/virtual assets.
The world of digital and virtual assets is vast, and as we continue to spend more time and money on digital and virtual goods, family law attorneys must be asking the questions to discover digital and virtual assets. If these assets are overlooked, attorneys and parties could be leaving real, not virtual, dollars on the table.
Chris Meuse is an associate at KoonsFuller, P.C. and can be reached at email@example.com.