Dividing Digital Assets in an Alabama Divorce

A generation ago, dividing property in a divorce meant sorting through tangible items: the house, the cars, bank accounts, and retirement funds. Today, a significant portion of a family’s wealth may exist only in the digital realm. From cryptocurrency wallets and social media accounts that generate income to vast collections of family photos stored in the cloud, these electronic assets present unique and complex challenges for couples going through a divorce in Alabama.

The process of untangling a marriage involves careful accounting of all marital property.

What Exactly Are Digital Assets in a Divorce Context?   

Digital assets refer to any property or information that exists in an electronic format. While some, like the balance in an online bank account, are straightforward, many are new concepts for the legal system. They generally fall into categories based on their nature and value, which can be monetary, commercial, or purely sentimental. It is important to consider every type of digital holding, as even those without a clear market price can be significant points of contention.

Common examples of digital assets that must be addressed in an Alabama divorce include:

• Cryptocurrencies: This includes Bitcoin (BTC), Ethereum (ETH), and thousands of other altcoins held in online exchanges like Coinbase or in private digital wallets.
• Non-Fungible Tokens (NFTs): Unique digital items, such as art, collectibles, or virtual real estate, whose ownership is recorded on a blockchain.
• Online Financial Accounts: Balances held in platforms like PayPal, Venmo, Cash App, or other digital payment services.
• Business and Social Media Accounts: A personal Facebook profile may have little monetary value, but an Instagram, TikTok, or YouTube account with a large following that generates income is a substantial asset. This also includes business websites, blogs, and e-commerce stores.
• Intellectual Property: Assets such as domain names, registered trademarks, copyrights to digital works, and patents for software or online processes.
• Reward and Loyalty Programs: Accumulated frequent flyer miles, credit card points, and hotel loyalty points can have considerable cash value.
• Digital Media Collections: Family photos and videos stored on cloud services like iCloud or Google Photos, as well as purchased music, movies, and e-book libraries.
• Gaming and Virtual World Accounts: In-game items, currencies, and accounts on platforms like Steam or within virtual worlds that can be bought and sold.

Are Digital Assets Considered Marital Property in Alabama?

Yes, in almost all cases. Alabama operates under the legal principle of equitable distribution. This means that all assets and debts acquired by either spouse during the marriage are considered marital property. Upon divorce, this property must be divided in a manner that is fair and equitable, though not necessarily a strict 50/50 split.

The form of the asset does not matter. Whether it’s a piece of real estate in Mobile or a Bitcoin wallet managed from a laptop in Huntsville, if it was acquired or its value increased during the marriage using marital funds or effort, it is subject to division.

The key distinction is between marital and separate property.

• Marital Property: An asset acquired from the date of marriage to the date of separation. A cryptocurrency portfolio started and funded with paychecks earned during the marriage is a clear example of marital property.
• Separate Property: An asset owned by one spouse before the marriage, or one received as a gift or inheritance specifically to that spouse during the marriage.

However, separate property can become marital property through processes known as commingling or transmutation. For example, if a spouse owned a domain name before the marriage (separate property) but used marital funds to build an income-generating website on that domain, the website and its increased value would likely be considered marital property.

How Do Courts Identify and Value Digital Assets?

Identifying and valuing digital assets is one of the most significant hurdles in a modern divorce. Due to their intangible nature and, in some cases, their design for anonymity, a thorough approach is required.

Identification of Assets

The first step is locating all digital property. This is accomplished through the legal discovery process, where each party is required to formally disclose all assets. Methods include:

• Interrogatories and Requests for Production: These are formal written questions and requests for documents sent to the other party. You can ask for lists of all cryptocurrency exchanges used, social media accounts, and online financial platforms, along with statements and transaction histories.
• Reviewing Financial Records: Bank statements, credit card bills, and tax returns often show the paper trail. Look for transfers to crypto exchanges, payments to domain registrars, or income from platforms like PayPal or Stripe.
• Subpoenas: If a spouse is uncooperative, your attorney can issue subpoenas directly to third parties like financial institutions, social media companies, or cryptocurrency exchanges to obtain records.
• Forensic Analysis: In cases where a spouse is suspected of hiding assets, a digital forensic expert can be retained to examine computers, smartphones, and other devices for evidence of hidden wallets or undisclosed accounts.

Valuation of Assets

Once identified, assets must be assigned a monetary value. This can be complicated.

• Volatile Assets: The value of cryptocurrencies and stocks can fluctuate wildly from day to day. The parties, or the court, must agree on a specific valuation date, such as the date of filing for divorce or the date of the final hearing.
• Business and Brand Accounts: Valuing an income-producing blog or social media account often requires a business valuation professional. They might analyze revenue streams, follower engagement, brand recognition, and other metrics to determine a fair market value.
• Reward Points: The value can often be determined by checking the program’s terms and conditions for a cash-out value or the market rate for purchasing similar points.
• NFTs and Domain Names: These are valued much like art or real estate. An appraiser with knowledge in the specific digital market may be needed to assess recent sales of similar assets.

How Are Common Types of Digital Assets Handled?

The method for dividing a digital asset depends on its nature. Alabama courts have broad discretion to create an equitable distribution.

• Cryptocurrency and NFTs: Because these are easily transferable, a court might order an “in-kind” division, where a portion of the cryptocurrency or specific NFTs are transferred to the other spouse’s wallet. Alternatively, one spouse may keep the assets and pay the other spouse their share of the value from other marital property, known as a buyout.
• Social Media and Online Businesses: If an account is tied to a business, it is typically awarded to the spouse who operates that business. However, the value of that account is factored into the overall property division, and the other spouse must be compensated for their share. For jointly run accounts, a decision must be made about who will maintain control, or if the account must be sold or dissolved.
• Reward Points and Frequent Flyer Miles: Many loyalty programs have strict rules against transferring points to another person. In these cases, a court may calculate the cash value of the points and order the spouse who keeps them to pay that amount to the other spouse from a different asset.
• Photographs, Videos, and Personal Data: These assets have immense sentimental value but little monetary worth. The focus here is on access, not division of value. A settlement agreement should include provisions ensuring both parties receive copies of all shared family photos and videos, often by one party providing the other with a hard drive containing the files.

What Challenges Arise When Dividing Digital Property?

Navigating the division of digital assets introduces several potential complications that are less common with traditional property.

• Concealment: The pseudo-anonymous nature of some cryptocurrencies makes them a tempting vehicle for spouses looking to hide assets. Tracing these funds often requires a forensic accountant who is skilled in blockchain analysis.
• Access Issues: A vindictive spouse might change passwords, deny access to shared accounts, or refuse to hand over the private keys to a crypto wallet. A court can order a spouse to provide access, but if a private key is truly lost, the assets may be irrecoverable.
• Jurisdictional Problems: A spouse might store digital assets on servers or exchanges located outside of the United States. While Alabama courts have jurisdiction over the spouses, enforcing an order against a foreign entity can be difficult and costly.
• Tax Consequences: Selling a digital asset to facilitate division can trigger capital gains taxes. It is important to consider these tax implications when structuring a settlement to avoid an unfair financial burden on one party.

What Steps Should You Take to Protect Your Interests?

If you are entering a divorce and believe digital assets are involved, being proactive is key.

• Create an Inventory: Make a comprehensive list of every digital asset you are aware of, including login information if you have it. Think about online accounts, rewards programs, digital subscriptions, and stored media.
• Gather Documentation: Collect and make copies of any relevant documents. This includes statements from cryptocurrency exchanges, PayPal transaction histories, bank records showing purchases of digital goods, and income statements from online businesses.
• Preserve Everything: Do not delete emails, text messages, or files related to digital assets. Deleting potential evidence, known as spoliation, can result in serious penalties from the court. Take screenshots of social media posts or account balances if you are concerned they might be deleted by your spouse.
• Secure Your Personal Accounts: Change the passwords on accounts that are clearly your separate property, such as an email account you had before the marriage. Be very cautious about changing passwords on joint or marital accounts, as this could be viewed negatively by a judge. It is best to seek legal advice first.
• Consult with a Divorce Attorney: The laws surrounding digital property are still developing. Working with an attorney who is knowledgeable about these unique assets is the most effective way to protect your financial interests.

Navigating the Digital Frontier of Divorce

The division of property in an Alabama divorce has grown far more complex with the rise of digital assets. What may have started as a hobby or a small investment can become a central point of contention in a marital dissolution. Properly addressing these assets requires a detailed and forward-thinking legal strategy. The attorneys at Haygood, Cleveland, Pierce, Thompson & Short, LLP are prepared to help you identify, value, and secure an equitable share of all marital property.

Contact us today at 334-560-1936 for a personalized consultation to discuss your case and learn how we can protect your rights.