Dividing Virtual Assets in Divorce

Dividing Virtual Assets in Divorce

In Arizona, marital property is subject to equal division between the spouses in a divorce. The task of determining the nature and character of certain assets as either separate property or community property can sometimes be difficult, particularly when transmutation has occurred. Recently, a unique new form of intangible property has made a quiet entry onto the divorce scene. Virtual assets are creating unique challenges for couples and their family law attorneys.

Recognizing Assets — Virtual Goods and Virtual Real Estate

Those who limit online marketplace activities to buying tangible goods on eBay and Amazon, for example, may be surprised to learn that virtual goods are intangible objects regularly bought and sold within online communities and to gamers. These virtual assets can take any digital form including:  designer clothes for avatars and toons, tokens for special game privileges, sports cars for better driving on a virtual racetrack, and even acreage on the virtual farm.

Some well-known providers of digital goods in the virtual marketplace are Facebook (using “Facebook Credits” as currency), Playfish (using “Playfish Cash” as currency), Second Life Marketplace (using “Linden Dollars” as currency), and Xbox Live Marketplace (using “Microsoft Points” as currency).

To give you an idea of the U.S. dollar (USD) value involved in some of these purchases, the “Entropia Universe [later Planet Calypso], an online game created by … Mindark, entered the Guinness World Records Book in both 2004 and 2008 for the most expensive virtual good ever sold, and in 2010 a virtual space station, a popular destination in this game, sold for $330,000 [USD].” — Wikipedia. To the purchaser, the space station was likely an investment – users of the space station could be charged a fee in virtual currency to enter.

When real community dollars buy digital goods and virtual real estate, then the online asset may be divided in the divorce as another type of marital property. And when virtual profits are accumulated, those may also be community property. If a spouse’s wages were used to purchase an online saloon where other participants pay to hang out, like Planet Calypso for example, then the saloon could be community property and, if it is generating value to the spouse, it should be analyzed carefully as property divisible in a dissolution of marriage. Putting aside the spouse’s emotional attachment to online assets, what are virtual properties really worth?

Virtual Currency

To recognize a virtual asset as intangible property of value subject to division in divorce, think of virtual currency, or credits, as simply another medium of exchange. One thing of value is given in exchange for something else, the transaction just happens to occur in a non-physical environment. But there is a trade nonetheless — something of value for something of value. These transactions occur continuously and on a very large scale in online gaming communities like World of Warcraft (using virtual “Gold” as currency). Virtual currency may have real value in U.S. dollars (USD) and such trading can lead to real world profits.

Turning a Virtual Profit into a Real Profit

The process involved in turning a profit by trading in digital goods for online currency is not all that complicated for the online gamer. The virtual currency has to transfer out of the online community in the form of USDs through PayPal accounts into bank accounts. Here is how Second Life virtual profits transition into spouses’ bank accounts:

Step 1. The spouse, an online resident, sells digital goods to other online residents for credits or, in the case of Second Life, Linden Dollars.

Step 2. The spouse exchanges the accumulated Linden Dollars to online residents on the LindeX™ (the in-game currency exchange) or the Xstreet SL™ currency exchange (the virtual marketplace) for USD credit. This turns virtual Linden Dollars within the online community into something of common value in the real-world community – a credit for USDs.

Step 3. Once the spouse has a USD credit balance from the exchange, the credit balance is moved to his or her PayPal account where the USD credit is processed – the money is now in the bank. $55 million USD processed credits came through Second Life community residents in 2009.

Virtual Asset Exchange

Continuing with Second Life’s virtual currency, Linden Dollars, as an example of how profits are generated through online communities — Linden Dollars are exchanged for USDs on the community’s LindeX™ and Xstreet SL™ exchanges.

Second Life’s year 2009 financials were reported as:

  • 2009 User-to-user transactions = $567 million USD.
  • 2009 Linden Dollars in circulation = $6.95 billion Linden Dollars.
  • 2009 USD value of Linden Dollars in circulation = $26.5 million USD.
  • 2009 Sales of user-generated virtual items on “Xstreet SL” = $1.6 billion Linden Dollars, $6.1 million USD.
  • 2009 Total USD value of all Linden Dollars traded on the LindeX™ currency exchange  = $115 million USD.
  • 2009 Total USD value of all Linden Dollars traded on the Xstreet SL™ currency exchange = $1.5 million USD.

And here is a brief look at the fourth quarter of Second Life’s 2010 economy:

  • 2010 4Q Average exchange rate = $258.8 Linden Dollars to USD.
  • 2010 4Q USD value of Linden Dollars in circulation = $28.3 million USD.
  • 2010 4Q LindeX™ volume = $30.5 million USD.

With significant figures like these, it is apparent that digital goods and intangible real estate have determinable values outside the gaming community. When virtual assets are included in a couple’s financial portfolio, a good family law attorney can discern whether those assets are divisible as community property in the divorce. Divorces involving bankruptcy can be even trickier when virtual assets are up for grabs.

Click on any of the following articles to learn more about property division in divorce: