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Digital and virtual assets as part of the marital estate and division of property

Our lives are becoming more and more connected to technology. Without even thinking about it, spouses may have digital or virtual assets with value to the community estate that should be considered in the division at divorce.

Chris Meuse’s article on the Dallas Bar Association website sheds light on how to address digital and virtual assets in divorce.

The first step, according to Meuse, is to identify whether the parties have any valuable digital or virtual 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: e-mail 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.

Two examples of digital assets that most people getting a divorce in Dallas, Texas own are the iTunes music library and the Kindle digital book collection. Virtual media libraries, such as Apple’s iTunes and Amazon’s Kindle libraries, are the modern way to store a media collection. Music, movies, and books are now able to be stored on applications such as iTunes on an individual’s computer, cell phone, or any other supportable device. In addition to adding media already owned, a user can download content; in the context of iTunes, the iTunes Store allows easy access to purchase a variety of media with a simple click. When the company provides their software to individuals, the individual receives a license to use or rent the software, not to own it. So an individual using iTunes really owns a legal right to use the product, not outright ownership of the product. The registered user is also the only individual actually allowed to use the product – not the individual’s significant other or family members — making division in divorce difficult.

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.

Once such assets are identified, the next step, as with the analysis of any asset of a marriage, is to determine whether the asset was acquired during the marriage, making it community property subject to division in the divorce, or whether the asset was owned prior to the marriage and is therefore separate property and outside the reach of the divorce court. This analysis is no different with digital or virtual assets than it is with a tangible asset. The example given by Meuse involves an income-producing blog. 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.

Next, the value of the digital or virtual asset must be determined. This is the difficult part of the analysis. 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, vacation rentals [dot] 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 digital or virtual assets are identified and character and value determined, parties must still figure out how to assign or divide that assets. 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.