Social Media Account in Divorce
By Jeff J. Horn, Esq.
Helena came to me for a second opinion. She is divorcing her YouTuber husband. The key dilemma for Helena is whether dividing a social media account in divorce will be worth the battle. Needless to say, the husband objects to dividing the social media account in divorce. The husband calls his social media business a hobby.
Social Media Account in Divorce – Value
Everything starts with value. Does the social media account have a value in divorce? Everything has a value. There are markets and experts for everything.
Social Media Account Marketplace
All forms of digital assets are traded on various marketplaces including Flippa Flippa: Buy and Sell Online Businesses, Websites, Apps & Domains and Empire Flippers Empire Flippers – Website Brokers | Vetted Marketplace. This is a brisk business. Apps, websites, blogs and social media accounts are sold. For the most part, the market is fairly orderly. Surprisingly, digital business assets tend to sell for a multiple of earnings.
A YouTube channel generates $200,000 per year in profit. The channel is worth between 1.5 to 3 times the profit. So $300,000-$600,000.
Website Value in Divorce
Variables on the multiple will include
- Traffic trend – If the traffic is trending up steadily over a period of time, the multiple is higher. If the traffic is flatlined or trending down, the multiple is lower.
- Star Power – If the site relies exclusively upon a star and the star will not be continuing with the site, it is worth much less.
- Industry Risk – If the industry is on the upswing a higher multiple will be justified. If the industry is dying, the multiple will be lower.
- Revenue Type – If all of the revenue comes from one monetization stream the site will be worth a lower multiple. For example, if all of the revenue comes from Amazon affiliate deals and Amazon cuts the affiliate rate as it does often, the site is risky. Conversely, if the site has multiple revenue streams i.e. affiliate deals, advertising, product sales and offers premium subscriptions the revenue is less risky. Less risky revenue translates to a higher multiple.
- Who owns the Audience? If the social media account has an independent means of contacting its subscribers through email, the site owner owns the audience. If not the social media platform owns the audience and the channel is less robust.
- White hat/Black hat – If traffic is generated by genuine interest and organic search the site is worth more. If traffic is generated by spammy and gimmicky tricks the site is always in danger of search engine algorithm resets. Sites can actually be banned. Black hat traffic sites derive a lower multiple.
- Verifiable Revenue. If the seller has clean records and the buyer can rely on the numbers. The numbers include Google analytics, advertising revenue straight from the advertising platform, tax returns i.e.. Legitimate records increase the confidence that the site’s revenue is legitimate. Legitimate verifiable revenue creates a higher multiple.
How does all of this impact dividing a social media account in divorce?
Value to the holder
Generally, we do not want to sell money-making assets in divorce. For example, if a social media account in divorce is generating cash flow, we want that cash flow as an income for support and asset for division. Market value is relevant to value in divorce. However, that is not the last word. In divorce we utilize fair value or value to the holder. Oftentimes, the value to a social media account in divorce is highest to its current operator. Hence, merely assessing market value may be insufficient to get the total value picture for dividing the asset and divorce.
There may be benefits to the owner that would not automatically transfer to the hypothetical purchaser. Perhaps some personal expenses are paid from the social media account revenue. Likely, friends and family may be involved in the social media account to be divided in divorce. Will those people stick around after the sale to a third party operator?
New Jersey law is clear under the case of Brown v. Brown. We utilize a value to the holder standard. Market value certainly shapes fair value. You will need to hire a forensic accountant to value your social media account and divorce. The forensic accountant will utilize marketplace resources as a check on value. Likewise, the forensic accountant will utilize a multiple of earnings to shape the value conclusion.
The Ultimate goal in Divorce is fairness
If a social media account or digital asset is growing, likely its value will continue to increase. That value will inure to the benefit of the spouse that continues operating the site. Hence, the forensic accountant will utilize the trend to calculate the proper earnings multiple.
Should a social media account in divorce be valued at all?
I assume that money matters to people in divorce. The spread between a 1.5 multiple and a 3.0 multiple is double. If a site is generating $5000 per year profit the spread is $7500-$15,000. Save your money. In that case a forensic evaluation would be excessive and silly.
However, utilizing my hypothetical above if the site produces $200,000 per year in profit or more a detailed valuation is essential. Raise the stakes even higher. A social media account generating $1 million. Profit will fetch an even higher multiple if it meets all of the other criteria I set forth above. Focus on continued audience growth and diversity revenue streams. Those two factors will increase the value of the account and dramatically increase the equity available for division of the social media account in divorce.
What about Helena?
Helena’s spouse had multiple social media accounts. The sites produced gross revenue of over $500,000 per year. Some were on the upswing and some were trending down. In the divorce, he of course, asserted that traffic was down and his revenue sources were in jeopardy. In truth, traffic was down because he was working less and posting fewer videos. Sorry sir, intentionally working less is a losing proposition when litigating a divorce. He will be judged based upon his capacity to earn.
The valuation of the social media account in divorce will be based upon the trajectory of audience traffic and revenue during the marriage.
A sudden drop off will not be honored. Perhaps Helena’s spouse thinks that he is the first one to think of working/posting less to drive income and value down. Think again. This trick is time honored and easily detected.
Forensic Evaluation in Divorce
Helena needs to move forward with a forensic evaluation. She must establish the revenue. Follow the trend of the social media accounts during the marriage. Utilizing the forensic accountant, Helena will drive the revenue up and demonstrate the trend which likewise drives the multiple up. Helena has no choice, hundreds of thousands of dollars in equitable distribution are at stake.