Open Access Research Article
COMPLEXITIES OF DIGITAL ASSET AND ITS DIVISION
Published Paper
Article Details
COMPLEXITIES OF DIGITAL ASSET
AND ITS DIVISION
AUTHORED
BY - MR. R A KATTA
This article aims to identify the
complex web of issues related to the distribution of digital assets during family
arrangement, disputes divorce and in the wake of death of a member. In a
rapidly evolving environment, the introduction of digital assets has created
complex challenges, especially in the area of separation and inheritance. It
examines the financial, emotional and legal issues one deals with matters of
separation and inheritance. The discussion encompasses jurisdiction-specific
regulations, valuation, dilemmas, access disputes, and the critical roles of
digital estate planning in ensuring a smooth transition of assets. The need for
clear communication, comprehensive planning, and legal adaptability can create
an environment to deal with modern issues.
When we look at the physical assets,
they can be easily divided during partition or passed on to the legal
representatives at the time of death. What about the volatile digital assets?
For instance, cryptocurrencies are highly volatile and not stable creating
difficulty in determining their true value. With growing digitalization, wealth
is created over the internet. What will happen when there’s a question about
the division of wealth at the time of separation? How can the digital assets be
passed on to the legal hire or representative at the time of death? This
research paper aims to identify the solution for division of the digital
assets.
Keywords: Digital
Assets, Crypto, Cryptocurrencies, Wealth, Digital Wealth, Division, Family
Arrangement, Divorce, Awareness, Solutions.
INTRODUCTION
Post-pandemic the usag of digital
media has increased at an unexpected rate. The world is moving towards the era
of digitalization. The era dominated by technology has widened the concept of
wealth, which is now more than tangible assets. Wealth is created over the
internet through digital assets. The question comes into the picture what are
‘Digital Assets’? The term is not well defined legally, which gives room for a
broad interpretation. From cryptocurrencies and online accounts to intellectual
property, has not only evolved the concept of assets but also brought
challenges concerning division at times of divorce, demise or any other
conflict.
DEFINING
DIGITAL ASSET
Digital Assets are anything and
everything that is stored in the digital form which can be put in to create
value.[1] Digital Assets include
cryptocurrencies, e-commerce websites, social media accounts, photos, videos, subscription
accounts, NFTs, digital gold, digital documents, logos, streaming media
accounts and much more. With the introduction of blockchain, there are digital
assets such as security tokens, crypto assets, metadata, non-fungible tokens,
and more. Digital assets are acquiring importance in today’s world as they are
becoming an integral part of one’s profession and personal life.[2]
An asset is a resource in the economy,
which holds the potential to create value.[3] The most important factor to
determine the digital asset to be an asset, it must possess the potential to
create value. The digital assets can be purchased, gifted, or transferred to
someone else bringing the value. The digital asset must be traceable and
stored.
EXTENT
OF DIGITAL ASSETS
Digital assets are much more than
photos, videos, logos, and e-wallet money. It has gained popularity due to its
easy access and convenience. The revolution in the digital market began with
the introduction of blockchain and cryptocurrency in 2009.[4] Cryptocurrency became a well-accepted
digital asset as people started investing in it with an expectation of return
values. With the increasing number of internet users, the usage of digital
resources has increased. Nowadays we prefer surfing digital resources to find
relevant information rather than the library as it saves cost, and time and is
convenient.[5]
The digital assets are easily traceable with the help of blockchain and
distributed ledger technology (DLT).[6] The other examples of digital assets
may include, Photos and videos, Documents, Emails and email accounts, NFTs,
Purchased Media accounts like subscriptions, Gaming Accounts and Illustrations,
Social media accounts like YouTube, Instagram, Facebook, twitter, and much
more.[7]
IS
ONLINE MEDIA CONSIDERED AS AN ASSET?
The traditional definition of assets
is defined as any resource which holds the potential to generate revenue.[8] The assets which add no value to the
business or person is not considered as an asset. Similarly, the digital
resources in which we have the potential to create value or hold some sort of
value are considered Digital Assets. For instance, a YouTube channel has one
million subscribers, bringing in brand collaborations, and generating revenue.
This YouTube channel shall be treated as an asset. Assets have two categories
tangible and intangible. Tangible assets are those which are physical (like
machinery, inventory, and more), whereas intangible assets are those which
cannot be seen but felt (like trademarks, and goodwill).[9] When we look at digital resources
adding or generating value or carrying any value, we can consider them as a new
category of ‘digital assets.
1.
Cryptocurrencies:
A form of digital currency, which is a
rising alternative payment method, created using the algorithm.[11] To name few Bitcoins, Ethereum, and
Dogecoin are among the popular coins.
2.
Digital
SM Accounts:
Social Media accounts (like Twitter, YouTube, Facebook, and Instagram), cloud
storage, Gmail accounts, and many more carry financial as well as sentimental
values.
3.
Intellectual
Assets: Digital
Creations like e-books, social media posts, artwork, music, and more fall under
the category of Intellectual properties. Their division and ownership questions
are increasing and creating complexities.
4.
Virtual
Possessions:
These are the possessions which do not carry any material value, but are
created during interaction with a digital platform.[12] It includes subscription accounts
(like Netflix, family cloud storage, search history, music playlists, SMS,
video games, and more.
About five decades ago, situations
were different, life was slow and not had to be worried about many things. But
post-2020 has created a way faster than anyone could have imagined. There are
things like breaches of data and privacy, empty bank accounts overnight and
much more. When the wealth is being created virtually, the concern regarding
division of the digital assets.
Generally, during divorce, various
factors like contributions of the spouse, and circumstances are considered in
the division of the assets. In a court-litigated divorce, in most cases, the
assets are evenly divided, whereas in a mediated divorce, the assets are
divided as per the mutual agreement.[13] The assets carry financial as well as
sentimental values, thereby requiring careful consideration. For instance,
family photo albums on smartphones or clouds, carry irreplaceable sentimental
value.
In the case, Ruscoe v. Crytopia
the New Zealand High Court recognised digital assets as property which
possesses the capability of entrusting.[14] The defendant was a cryptocurrency
exchange platform that enabled its users to trade cryptocurrency and levied
some amount of fees for the same. The website was hacked in 2019 and caused a
heavy loss of NZ$30 million to account holders.[15] The question of digital assets being
property was raised. The plaintiff argued that it must be seen as ‘intangible
personal property.’[16] The court held it as “property” as it
fulfilled the following three categories: -
·
Traceable Subject matter
·
Identifiable by the third party
·
Some degree of stability
·
Cable of assumption by the third party
There is an increasing dispute over
the access and ownership of digital assets during divorce and separation. The
following are the challenges arising at the time of the division of digital
assets:-
1.
Identification
and Volatile:
Digital assets are of various types like social media accounts, cryptocurrency,
intellectual property and much more. Identifying and valuing them can be
challenging due to their volatile nature.
2.
Jurisdictional
Issue: Digital
assets exist beyond the borders of a country, which may pose challenges in
determining the applicability of law.
3.
Security
are Privacy Concerns:
Digital assets usually require credentials for access. Transfer of credentials
with compromise of security can be challenging. Ensuring privacy and compliance
with data protection laws during the division process is essential.
4.
Cryptocurrency
Challenges: Managing
and securing the private keys is essential, as a loss of the private keys can
lead to a loss of the assets. It also has tax implications which need to be
considered during the division.
5.
Digital
Rights and Licensing:
The assets which are copyrighted or software which may involve complex licensing
agreements need to be considered during division. For instance, an Instagram
page having 5 million followers, is handled jointly by the husband and wife. It
is challenging to determine the ultimate ownership during the separation of the
couple.
OF DIGITAL
ASSETS
With the rising digitalization, it is
crucial to carefully examine the digital assets and be pre-planned for the
division. The division shall be mutually agreed upon by the parties. Following
are a few strategies to deal with the challenges mentioned above: -
1.
Create
Digital Will: When
pre-planning the division makes things look less complicated. Suppose one can
specify his/her wishes and who shall get which part of digital assets, the
division becomes simple. Seek advice from a legal professional for handling the
information about division.
2.
Regular
Review and Updates:
With the fast-evolving time, one must keep themselves updated regarding the
latest digital platform. Ensuring technical literacy of beneficiaries and
family members about the digital assets, their value and the division process.
3.
Licensing
Documentation:
Keeping a piece of detailed information with regards to the licenses like
copyrighted content and applying the usage of digital wallets and secure vaults
to keep the documents safe and secured.
4.
Mediation: A mediator is a trained and impartial
professional who resolves disputes outside the court through discussion.[17] Consider a consultation session with
a mediator to resolve the dispute arising in the division process.
5.
Seek
Professionals:
Engaging with specialists like Lawyers, Tech experts, and estate managers, can
provide ideas and guidance for specific circumstances.
Our lives are now more inclined to the
digital realm. There is a continuous investment in digital assets like
cryptocurrencies, digital gold and more. The influencers through YouTube and
Instagram are earning through their millions of followers and subscribers. This
has created a huge impact on the manner wealth and assets are created. As we
navigate evolve adopt digital assets and pass on the legacies a comprehensive
framework or guiding principle is much needed. Navigating through the dispute
matters regarding the volatile assets requires careful analysis. To
successfully navigate the digital revolution, it is essential to have a strong
understanding of the digital landscape. To effectively address challenges, you
must make a concerted effort to communicate with both legal and technical
experts. The framework for the division of digital assets can be formulated
through a collaborative initiative of individual professionals, legal systems
and financial institutions. As the digital era is approaching, rapidly evolving
everything done around us, adapting and addressing the challenges are
essential.
[1] Gartner Glossary, https://www.gartner.com/en/finance/glossary/digital-assets (last visited Dec. 4, 2023 10:57 AM).
[2] Investopedia, https://www.investopedia.com/terms/d/digital-asset-framework.asp (last visited Dec. 4, 2023, 11:07 AM).
[3] Financial statements, https://www.investopedia.com/terms/ (last visited Dec. 4, 2023, 11:14 AM).
[5] Dam News, https://digitalassetmanagementnews.org/features/re-defining-the-meaning-and-scope-of-digital-assets-part-1/ (last visited Dec. 4, 2023, 12:37 PM).
[6] Deloitte,
https://www2.deloitte.com/us/en/pages/center-for-board-effectiveness/articles/from-next-generation-to-now-digital-assets/ (last visited Dec. 5, 2023, 1:23 PM).
[9] The Balance,
https://www.thebalancemoney.com/tangible-vs-intangible-assets, (last visited
Dec.5 2023, 4:12 PM).
[10] The Motley Fool, https://www.fool.com/terms/d/digital-assets/, (last
visited Dec. 6 2023, 10:20AM)
[11] Oswego State University off New York, https://www.oswego.edu/cts/basics-about-cryptocurrency/, (Dec. 6 2023, 10:24AM).
[12] Carnegie Mellon University,
https://www.hcii.cmu.edu/project/virtual-possessions, (Dec. 7 2023, 2:45PM).
[13] Collaborative Practice California, https://www.familydivorcesolutions.com/digital-assets-how-are-they-divided-in-divorce/, (Dec. 8 2023, 12:33 PM).
[15] Norton Rose Fulbright,
https://www.nortonrosefulbright.com/en/knowledge/publications/d6ea37bd/cryptocurrencies-are-property-capable-of-being-held-on-trust-new-zealand-high-court-holds,
(Last visited. Dec. 10, 2023).
[17] Anderson Hunter Law Firm, https://andersonhunterlaw.com/blog/what-is-a-mediator (last visited Dec. 12, 2023, 10:45 AM).
Article Information
COMPLEXITIES OF DIGITAL ASSET AND ITS DIVISION
Authors: MR. R A KATTA
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/02/10
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
- Access Open Access
- License CC 4.0
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