“Data is the most valuable asset on Earth” so says Brittany Kaiser in the new Netflix documentary, “The Great Hack”. In modern divorce cases, the disclosure of and valuation of digital assets is as relevant today as bricks and mortar and cash has always been.
The growing importance of Facebook in divorce cases
Facebook started life on 4 February 2004 and is now one of the biggest companies in the world. It is also the largest social media platform site with 2.41 billion monthly active users. And in the context of divorce, Facebook can be used as both a tool and a weapon.
In 2012, Divorce-Online UK surveyed British divorce lawyers and found that a third of the petitions cited Facebook as a reason for the divorce. Furthermore they used evidence gathered from Facebook in the particulars. In 2019 it’s easy to believe that this number will have increased.
In this modern era, not only do we publish our lives online, sharing intimate details of our lives with friends, family and strangers, but we are also acquiring digital commodities, commodities which can increase in value and become a battle ground when it comes to divorce.
It is essential, therefore, for family lawyers to be fluent with the ownership of this class of assets when it comes to the divorce.
What is a digital asset?
A digital asset, in essence, is anything that exists in a binary format and comes with the right to use.
During a marriage spouses will often share accounts for things like
- online photo libraries
- web domain names
- Amazon accounts
- iTunes accounts
- air mile accounts etc.
A spouse may even have virtual assets bought, earned or won in online games such as Second Life, Entropia and World of Warcraft.
When a spouse uses matrimonial assets to purchase these items, they will be considered matrimonial assets and should not be forgotten.
At the outset of a divorce both parties are required to complete a Form E which sets out all of their assets. Currently, the Form E does not have a specific question about digital assets, but the parties have an ongoing duty to provide full and frank disclosure of all assets and therefore ownership of digital assets with a monetary value should be disclosed.
If not, it will be down to the divorce lawyer to ask the right questions in the follow up Questionnaire to ensure that any substantial digital asset is taken into account and appears on the asset schedule.
Are digital assets actually worth much though?
Of course, there are digital assets which are more sentimental in value, such as photographs, which can be easily copied. But some digital assets could carry a substantial value which should not be overlooked. As an extreme example, in 2005 Jon Jacobs, an English actor, mortgaged his home to buy a virtual asteroid for USD$100,000 and later sold it for USD$635,000. Clearly, a digital asset which a divorce lawyer would need to know about.
Cryptocurrency, such as Bitcoin, is another digital asset which is becoming more mainstream. Cryptocurrency is a virtual currency which has no physical form as it exists only in the online network, that network is completely decentralised so there is often no third-party bank or government that the currency has to go through. Instead, the technology allows users to send cryptocurrency directly to another person (this allows users to be pseudo-anonymous). The details of the transaction are then encrypted and the transactions are placed into a “blockchain” the details of which cannot then be changed by anything or anyone and is based purely on math.
The ownership issue
Within the divorce process the lawyer needs to identify the ownership of cryptocurrency, value it and then argue how it should be distributed within the overall settlement.
In order to establish the existence or ownership of cryptocurrency, a search needs to be made of money entering the digital arena. However, once within the digital arena it is much more difficult to trace where the money goes next. If then moved offline, for example if a person transfers their digital wallet containing their holding onto a USB stick, tracing becomes virtually impossible. A digital forensics expert will almost certainly be necessary.
Valuing cryptocurrency is notoriously difficult and nebulous. As with stocks and shares, the valuation can change throughout the divorce process, but with cryptocurrency the market is much more volatile. The value of cryptocurrency is liable to change drastically throughout the divorce proceedings. A substantial cryptocurrency holding held by a spouse at the start of the divorce process might have diminished considerably by the time of the final hearing or settlement, and of course might also have increased in value. It will be imperative, therefore, to obtain a valuation at every stage of the process and prior to any settlement negotiations so that the parties know what they are dealing with.
Redistributing digital assets
As for distribution, the court retains their discretionary powers to redistribute assets on divorce in accordance with the section 25 factors. However, it is unclear what powers the court will have to actually redistribute cryptocurrency. In relation to other digital assets, it may be possible to share, copy or transfer. Where there is a substantial value linked to a digital asset being retained by one party, the other party should be receiving a cash equivalent sum to ‘buy out’ their interest.
When going through a divorce, therefore, it is imperative that you advise your lawyer about these online digital assets at the start of the proceedings. It will be too late to mention it after a settlement has been concluded. If we know about the asset, we can ask the right questions and build arguments which will either help you keep the asset or obtain your fair monetary share.
This article was written by Karen Holden (Founder) and Natalie Sutherland (Head of Family & Child Law) from A City Law Firm.
Karen Holden is the Managing Director & Founder of A City Law Firm who practise both commercial law and litigation, having been admitted to the roll in 2005. If you require further advice or assistance, please do not hesitate to contact [email protected]
A City Law Firm Limited is a leading entrepreneurial law firm in the city of London, with a dynamic and diverse team of lawyers. It was awarded most innovative law firm, London 2016 and Business Law firm 2017. They specialise in start-up business law, the tech industry, IP and investment