Importance of Digital Assets

What is a digital asset?  Any text or media that is formatted into a binary source, coupled with the right to use it; anything that can be stored digitally, has value, and cannot easily be reproduced.  In more straightforward terms:  digital photos, Prime movies, Kindle/Audible/Nook books, iTune/Spotify music, Dropbox/One Drive documents, Bitcoin or other cryptocurrency, airline miles, hotel points, credit card points, and Venmo/Paypal accounts.

Why might digital assets be an important issue in your financial life?  According to several sources,[1] the average American family owned $55,000 worth of digital assets.  I found the number difficult to believe until I started looking at examples of digital assets.  (I still feel the number is exaggerated except for the most digitally evolved families.  What value would you place on your family’s digital assets?)

As a general financial planning rule, you should keep track of digital assets in a Net Worth statement or with your financial documents.  Estate planning and divorce are a couple of areas that illustrate the wisdom of paying attention to your digital assets.

Your spouse/loved ones should be able to access digital assets in order to use them after your death.  The access to the asset will vary depending on the type of digital asset.  Not having access to the accounts typically means the assets’ value is lost.  If you are an avid reader on your KINDLE/Nook or your Amazon Audible accounts, think of how much money you spent last year downloading books.  It can really start to add up.  For families that travel a good bit, or employees allowed to keep airline miles and hotel points accrued for business trips, digital assets linked to travel could easily be worth thousands of dollars.

Digital assets are also a hot topic in divorce cases right now as well.  When going through a divorce, the couple has to create a thorough list of financial, use, and digital assets.  These assets have to be valued by the parties and divided accordingly.  Getting to a fair division of digital assets can be a challenge.  Many couples maintain just one account for a specific type of digital asset (like travel miles).  Most companies allow you to attach multiple credit cards to these household accounts, so it can be hard to determine which spouse purchased the asset and actually accrued the points.  Depending on the state in which you live, the asset would be divided equitably or could be assigned to the spouse that purchased the asset.

Once you purchase certain digital assets in your own name (ie online books/music/movies), you often cannot transfer the rights of use to another person – the asset has to be purchased again individually.  If you downloaded hundreds of books over your marital lifetime on your spouse’s account, they are not likely to be transferable, and your spouse has a useless asset if they don’t want them.  On the other hand, I’ve seen airline miles be split between spouses during a divorce by the company.  Limited transferability also means that digital assets in a divorce often have to be exchanged for another marital asset, as opposed to being divided equally.

Some digital assets are easier to value than others.  For instance, Paypal and Venmo are applications used to exchange cash from one person to another.  They work like a checking account, so the value of the account is simple to determine.  In the case of books and music, spouses generally need to agree on the average price per book and average price per song downloaded to come up with a valuation of their digital library.  Bitcoin and other cryptocurrencies have their own issues.  Their value can increase or decrease significantly on a daily basis, and they are typically stored online in digital wallets that are only accessible by the owner.  Not infrequently, they are purchased without spouses even knowing about the asset.

What are some prudent steps that you can take now regarding your digital assets?  Make a detailed inventory of all your digital assets and update the inventory at regular intervals.  Consider ways that you might safely share account access information with a trusted friend or family member.  And come up with a plan for who you would like to receive digital assets that can be transferred at your death and communicate that plan to your estate planning attorney.

 

[1] Michelle Cortes-Hawkins. “Virtual Reality: Handling Digital Assets in a Divorce.” Divorce Financial Analysts Journal, April-June 2019

 

Any opinions are those of Jennifer Adams and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notices.

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