Dividing Digital Assets in an Alabama Divorce

How Does Alabama Law Define Digital Assets in a Divorce?

When a marriage ends, Alabama courts are tasked with dividing the couple’s property through a process called “equitable distribution.” This doesn’t guarantee a 50/50 split. Instead, a judge divides assets in a way they consider fair, which may not be equal. This principle applies to all marital property, and that now includes digital assets.

• Marital Property: This category generally includes all assets and debts that were acquired or increased in value by either spouse during the marriage. A cryptocurrency account started and funded after the wedding day is a clear example of marital property.
• Separate Property: This typically covers assets owned by one spouse before the marriage, or assets received during the marriage as a gift or inheritance meant only for that individual. An email account created before the marriage, for instance, would likely be considered separate property.

The line can blur. A separate digital asset can become marital property through a process known as “commingling.” If marital funds were used to purchase more cryptocurrency in a pre-existing wallet, or if both spouses contributed to a blog or social media account that began generating income, the entire asset might be reclassified as marital property subject to division.

What is a Digital Asset?

The term “digital asset” is broad and covers any digital file or record that has value. In a divorce context, these can be sorted into several key categories. A thorough inventory is the first step in ensuring a fair division.

Financial Digital Assets

These have a direct and often clear monetary value. Failing to account for them is like leaving cash on the table.

• Cryptocurrency: Bitcoin, Ethereum, and other altcoins held in online exchanges or private digital wallets.
• Bank and Investment Accounts: Online access to traditional checking, savings, brokerage, and retirement accounts.
• Payment Platforms: Balances held in accounts like PayPal, Venmo, or Cash App.
• Stock Options and Grants: Digitally managed employee compensation, such as Restricted Stock Units (RSUs).
• Online Businesses: E-commerce stores (like Shopify or Etsy shops), blogs generating ad revenue, or YouTube channels with monetization.
• Domain Names: Valuable website addresses that can be bought and sold.
• NFTs (Non-Fungible Tokens): Digital collectibles, art, or other unique assets registered on a blockchain.

Assets with Potential or Sentimental Value

While some of these may not have a straightforward dollar value, they can be intensely personal and important.

• Social Media Accounts: Profiles on platforms like Facebook, Instagram, X (formerly Twitter), and LinkedIn. A personal account is one thing; an “influencer” account with thousands of followers and brand partnerships is a business asset.
• Digital Photos and Videos: Decades of family memories stored on services like Google Photos, iCloud, or Dropbox.
• Email Accounts: These are not just communication tools; they are digital filing cabinets containing receipts, financial statements, and a record of personal and business correspondence.
• Cloud Storage Accounts: Files and documents stored on platforms like OneDrive or Google Drive.

Reward Programs and Intellectual Property

These are frequently overlooked but can represent a significant amount of stored value.

• Frequent Flier Miles and Credit Card Points: Accumulated points can be worth thousands of dollars in travel or cash back.
• Hotel Loyalty Points: Similar to airline miles, these can offset significant travel costs.
• Digital Intellectual Property: Copyrights to photos, manuscripts for books, or patents for inventions that exist only in digital form.
• Gaming Accounts and Digital Items: In-game currency or rare items in online video games that can be sold for real money.

How are Digital Assets Valued for a Divorce?

Once identified, the next hurdle is determining the value of each digital asset. This can be simple for some and incredibly complex for others.

• Clear Market Value: For assets like cryptocurrency or funds in a PayPal account, the value is determined by the market price on a specific date. Attorneys will typically agree on a valuation date to lock in a value for these fluctuating assets.
• Complex Valuations: For an online business, a popular blog, or a valuable domain name, a professional valuation may be necessary. A forensic accountant or business appraiser might be hired to analyze income streams, website traffic, and market comparables to arrive at a fair value.
• Sentimental Assets: For items like family photos, the value is not financial. The focus here is on ensuring both parties have access. The solution is often as simple as agreeing to make copies, with one party bearing the cost if necessary.

A significant challenge is “personal goodwill.” For an influencer or a professional whose business is tied to their personal brand and online reputation, a court must determine how much of the business’s value is tied to the person (personal goodwill) versus the business itself (enterprise goodwill). This is a complex legal and financial question that requires skilled negotiation.

What are the Common Methods for Dividing Digital Assets?

After a value has been assigned to the marital portion of the digital assets, the court must decide how to distribute that value equitably. Selling every digital asset and splitting the cash is rarely practical or desired.

• Buyout or Offset: This is the most common method. One spouse keeps the asset and compensates the other with assets of equivalent value. For example, one spouse might keep the entire Bitcoin portfolio but give up a corresponding amount of equity in the marital home or a larger share of a retirement account. This is often the cleanest way to separate the parties’ financial lives.
• In-Kind Division: For some assets, an “in-kind” or direct division is possible. Cryptocurrency can be transferred from one wallet to another. Frequent flier miles can sometimes be transferred between spouses, depending on the airline’s rules.
• Shared Access or Copies: For sentimental assets like photos or important documents in a cloud storage account, the solution is duplication. One spouse will make a copy of all the files for the other, ensuring both retain access to their shared history.
• Co-ownership (Rarely Advised): In some very unusual cases, ex-spouses may agree to continue co-owning a digital asset, like an income-producing website. This is generally not recommended, as it requires a level of cooperation that is often difficult to maintain after a divorce.

How Can I Protect My Digital Assets and Information During a Divorce?

The period during and immediately after a separation can be fraught with tension. Taking proactive steps to secure your digital world is a sensible measure.

• Change Your Passwords: This should be one of the first things you do. Update passwords for email, social media, online banking, and any other sensitive accounts. Use strong, unique passwords for each account.
• Enable Two-Factor Authentication (2FA): For an added layer of security, enable 2FA on all important accounts. This requires a second form of verification, like a code sent to your phone, to log in.
• Preserve Everything: Do not delete emails, social media posts, or digital files. Deleting potential evidence, known as spoliation, can have severe consequences in court. Your attorney needs a complete picture of the marital estate, and that includes the digital realm.
• Maintain Separate Finances: If you haven’t already, stop using joint accounts for personal expenses. Keep your business and personal digital transactions completely separate to avoid claims of commingling.
• Be Mindful of What You Post: Everything you post on social media can potentially be used as evidence in your divorce. Avoid posting about new relationships, large purchases, or negative comments about your spouse.

What is the Role of Digital Forensics?

Unfortunately, not everyone is transparent during a divorce. If there is a suspicion that one spouse is hiding digital assets, such as an undisclosed cryptocurrency wallet, or deleting financial records, it may be necessary to involve a digital forensics professional.

These professionals can:

• Recover deleted files and emails from hard drives and phones.
• Trace transactions of cryptocurrency.
• Analyze computer and internet usage history.
• Uncover hidden online accounts or assets.

Employing a forensics professional is a significant step, but it can be essential in high-asset cases where financial disclosure is incomplete or suspected to be fraudulent.

Can Legal Agreements Address Digital Assets?

Proactive legal planning can provide a clear roadmap for how digital assets should be handled in the event of a divorce.

• Prenuptial Agreements: An agreement made before marriage can explicitly define certain digital assets (like a pre-existing online business or cryptocurrency holdings) as separate property, protecting them from division.
• Postnuptial Agreements: A similar agreement made after the marriage has begun can be used to clarify the ownership of a digital asset acquired during the marriage, such as a jointly managed e-commerce store.
• Business Operating Agreements: For businesses with multiple partners, a buy-sell or operating agreement is vital. It can dictate what happens if a partner gets divorced, often preventing an ex-spouse from becoming an unwanted part-owner of a digital business.

Navigating the Division of Your Digital World

The division of digital property adds a layer of complexity to an already challenging process. It requires a forward-thinking approach and a detailed appreciation of both technology and Alabama’s equitable distribution laws. The legal team at Coumanis & York, P.C. is committed to helping families navigate these sensitive and intricate matters. We bring a detailed and knowledgeable approach to every case, working to ensure that property division agreements are fair, comprehensive, and tailored to the unique circumstances of your life.

Contact us today at 251-336-3121 for a consultation to discuss your situation and learn how we can assist you in protecting your future.