Dividing Virtual Dollars in Divorce

Aug 8, 2012 by

As reported in the Beijing Morning Post, a Chinese woman claiming virtual assets as real property in her divorce settlement met a roadblock when the judge denied her request and gave them all to her husband instead. Even though the virtual assets were acquired during online gaming over the course of her marriage, the judge refused to recognize them as real property because both spouses played their game characters under an account in the same name.

Just because the judge in China denied the woman’s claim that she owned half of the virtual assets accrued during her marriage doesn’t mean all courts would agree though, and brings up the interesting question as to how the same situation would be treated here in the United States.

Non-gamers might think virtual assets exist only in cyberspace online, but that is only partially true because they can also be converted into real cash.  As a result, gamers are willing to spend real dollars on virtual assets like Ultima Online castles, EverQuest weapons or Second Life currency. If they are not purchased, virtual assets must be earned over many hours of successful gaming where goals are reached in order to buy real estate, tools, ammunition and other items needed to move up to another level of a game.

The governments in most countries around the world are beginning to notice this new economic activity in online gaming. The rapid growth and the substantial value of the thousands of virtual assets changing hands everyday are beginning to attract the attention of the tax man too. The United States government may someday tax virtual winnings from games played over the Internet and it is probably only a matter of time before a U.S. based divorce court will have to grapple with the value of virtual assets too.

With an estimated growth rate of 10 to 15 percent a month for many of the virtual assets in play today, games in the not-too-distant future may have to include tax forms. If the IRS decides the transfer of virtual assets creates a taxable event, it is likely there will be a revised IRS tax policy coming soon.

The example of Anshe Chung, born and raised in China, but now a citizen of Germany, shows just how valuable virtual assets can be. Anshe was the first person in the world to achieve a net worth exceeding one million real U.S. dollars from profits earned entirely in a virtual world. As a resident in the virtual world game Second Life, Anshe deals in virtual real-estate in a currency known as Linden Dollars, which can also be converted to real U.S. dollars. The liquid market in virtual real estate allowed her holdings to be assessed in the real world with publicly available statistics. The remarkable fact that Anshe’s fortune was earned in just two and a half years from an initial investment of $9.95 attracted the attention of the real financial world and she was recently featured on the cover of Business Week Magazine. One million real dollars is certainly enough money to fight over in divorce court, regardless of how it was earned.

 

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