Splitting Income - Generating Digital Assets in Divorce
If a digital asset has been monetized, it could be part of divorce negotiations. A monetized digital asset could be ad-click revenue received from an owned domain name, blog or electronic storefront. Another example is an annual blog subscription. Consider what information is needed to analyze an income-producing blog.
- Who started the blog? (One spouse or together?)
- When was the blog started? (Before or during marriage?)
- Did the other spouse contribute to the blog? (Posting, editing or advancing it?)
If the blog started before the marriage, and the creating spouse primarily maintained it, it may be considered premarital property. However, if the other spouse put time and effort into the blog, the associated value may become an asset for consideration in the separation agreement.
If the blog started during the marriage, the value would likely be split between spouses. I haven’t performed a blog valuation, but I presume it would consist of an income approach where a capitalization rate would be applied to a normalized cash flow.
Income-generating assets are becoming more common in marital estates. Keeping creation and business records on these assets, as you would in a traditional business, will make division of assets easier during divorce.
A digital library—the accumulation of hand-picked music, books and movies—can be a contentious element in a divorce. Judges probably don’t care which spouse downloaded songs on iTunes or built the Kindle library. The court likely will treat a digital library like any other asset, such as the SUV or mixer.
However, we need to think about digital libraries differently. You know that fine print we “accept,” but never read? It says when you pay 99 cents for a song on iTunes, you actually receive a license to use iTunes software to hear the song, but don’t own the music. Read the iTunes fine print here.
Let’s apply this to a divorce with a substantial iTunes library. What the couple really owns is a legal right to use the product, not outright ownership. The registered individual is the only one allowed to use the product. Per Apple, “The content purchased from the iTunes Store is permanently associated with the account from which it was originally purchased.”
Depending on the fine print, a judge’s ruling might not replace the user agreement, which states ownership can’t be transferred. However, the judge could award something else in lieu of the iTunes/Kindle files. Here’s an example.
- Each iTunes song costs about $1.29.
- The couple owns 5,000 songs.
- There is an asset of about $6,500.
- The court might assign $3,250 of another asset, such as cash, when dividing the bank accounts.
The law has yet to catch up with the modern sense of ownership. Until then, it may take some creativity to reach an “equitable distribution” of your digital library.