The Group Hug
With lots of rising Scottish Influencers in our midst it is important to discuss whether or not Instagram accounts could/ should be considered matrimonial property. Thank you to Judith Higson and Laura Cousins of Scullion Law for this very interesting article
What is an influencer?
An influencer is someone who gets paid to endorse and review products because they have the power to influence the purchasing decisions of others. It is more than just posting a photo. An individual becomes an influencer when they gain the credibility, authority, and knowledge in a distinct area and actively engage with followers (their audience) via social media platforms like Instagram, Facebook, Twitter, and You Tube.
The size of an individual’s following can vary. Kim Kardashian for example has 162 million followers, she is very powerful. Kylie Jenner has 165 million and recently became a billionaire influencer. The Duke and Duchess of Sussex by comparison have over 11.2 million followers but they do not presently earn money from endorsing certain products, whilst on our doorstep we have the likes of Jamie Genevieve, a local make-up artist originally from Tillicoultry with over a million followers, she regularly works with large brands like Dior and jets off to luxury locations to film make up vlogs and tutorials. Again Emily Shak a Scottish Lebanese model living in Glasgow with paid partnerships with the likes of Boohoo has over a million followers. Ex Love Islander Molly Mae Hague has 3.8 million followers, she is an ambassador for Prettylittlething and Maura Higgins has over 2.8 million followers. She too is a brand ambassador for Boohoo.
In a recent survey when young kids were asked what they wanted to be when they grew up a large percentage said they wanted to be an influencer. Social media influencers have changed the marketing industry in recent years with brands pouring millions of pounds into collaborations and the trend is expected to rise.
A lot of companies collaborate with influencers as social relationship assets to help them achieve their marketing objectives and for some people, being an influencer is a full time job which gives them financial freedom.
Can an instagram account be considered matrimonial property?
When a married couple separate, the assets accumulated during the course of the relationship must be divided between the parties. These assets are known as matrimonial property. The law that applies is contained in the Family Law (Scotland) Act 1985.
Matrimonial property is defined in the legislation as all property that is acquired by the parties, either jointly or in their sole name, between the date of marriage and the date of separation. Gifts from third parties and inheritances are generally excluded from the definition of matrimonial property. In a typical separation, matrimonial property will comprise of assets such as a house, cars, bank accounts and pensions. Nowadays it can include an Instagram account too.
Of course, we are not talking about any old Instagram account. The account must generate an income for the account holder. Instagram influencer marketing has become a multi-million pound industry. Influencers all over the world have begun making a living from paid posts and collaborative marketing campaigns for top brands. It is important to remember that in the context of a separation, it is not the Instagram account that has monetary value. It is the business entity behind it…
Let’s consider the different types of business entities used by established Instagram entrepreneurs to manage their accounts.
1) Private Limited Company
If a spouse sets up a private limited company in order to manage their Instagram account, then it is the value of the shareholding in that company that would fall to be considered as matrimonial property in the event of a separation.
2) Partnership
If a spouse conducts their business via a partnership then, broadly speaking, the assets that are transferred to his or her Capital Account during the marriage will be matrimonial property.
3) Sole Trader
If a spouse is a sole trader then the assets used in the course of his or her business will be caught by the legislation.
Case study of Jessica and James, high school sweethearts who have been married for 5 years and recently decided to separate.
Jessica is a successful, young, glamorous, make-up artist turned social media influencer in her mid-20s from Glasgow. She works part time in a beauty salon in town but is quickly becoming a rising star via Instagram with an audience of over 200,000 followers. She regularly films make-up tutorials and reviews cosmetics products online. This allows her to live a very comfortable life, with a steady stream of income. She always gets invited to VIP event launches and has recently agreed an opportunity to become an ambassador for STAR lashes. There are various product endorsement opportunities like this in the pipeline allowing her to live a very comfortable life without needing to return to work in the salon.
Jessica spoke to a financial advisor who encouraged her to set up a limited company to help her run her income-producing account more efficiently. She is the sole director and shareholder.
Her husband, James, is a PE teacher is in his late 20s. Gradually they have just grown apart and both wish to divorce.
How would Scots law treat Jessica’s business on separation?
If Jessica set up her successful business after the date of marriage, then it will come within the ambit of the Family Law (Scotland) Act 1985 and will be treated as matrimonial property.
The starting point in Scots law is that matrimonial property should be shared fairly.
Fairly usually means equally, unless there are special circumstances to justify a departure from equal division.
Do special circumstances apply on this occasion?
Arguably. Under the legislation we are directed to consider the use made of the matrimonial property and the extent to which it is reasonable for it to be divided.
Jessica’s livelihood depends upon her Instagram account. It is her talent at make-up, her affable personality, and the frequency and quality of her posts that keep her audience engaged and willing to part with their own hard-earned money. James has played no active role in cultivating or supporting his wife’s brand, and is unknown to her hundreds of thousands of followers. We think that Jessica could have strong arguments in favour of unequal division.
Imagine husband James plays an active role in helping Jessica to enhance her social media presence during the period of marriage.
He moonlights as her photographer and videographer. His job is to capture the all-important money shot. This requires technical expertise and creativity. It also requires valuable time. James is a natural. He knows how to use lighting in order to draw attention to his subject and is a deft hand at editing. The result is sleek, polished and professional. Jessica uploads the content to Instagram and is inundated with likes and comments. Followers, new and old, engage with the post and go on to purchase the beauty products being endorsed. Jessica is delighted, but is on a quest to broaden her appeal. Her next post has to be more interesting and more engaging than the last. Jessica wants her followers to really get to know her and decides that James should feature in her posts. The idea is a good one. Jessica’s followers take to James immediately. He is funny, articulate and warm. A couple of months ago, Jessica had 100,000 followers. She now has 300,000 followers and is making more money from her sponsored posts than ever before.
The position is less clear-cut than before.
As we already know, if the parties separate then the starting point in Scots Law is that matrimonial property should be shared fairly unless there are special circumstances to justify a different division. However, there are some cases in which the norm of equal sharing will be inappropriate for other reasons. In our imagined scenario above, James could argue that his non-financial contributions to Jessica’s business during the period of marriage have enhanced its value. James could argue that he has been economically disadvantaged in that he has invested time and effort into an income-producing asset for no return. Meanwhile, Jessica has been economically advantaged in that she has reaped the financial rewards of her husband’s unpaid labour and her business has grown three-fold.
If you are an influencer you can protect your assets going forward by… setting out in advance of any separation how property will be divided is by entering into a Pre-Nuptial Agreement before you marry or a Cohabitation Agreement if you are going to live together. A Post-Nuptial Agreement after your marriage is also possible.
Paul Black is a highly respected forensic accountant at Armstrong Watson. He explores how an Instagram account might be valued by looking at the business entity behind the account.
Paul identified a number of matters to consider. This blog will explore how he might approach valuing an Instagram account should this situation occur.
First and foremost, Paul would be interested to find out whether the account was established before or after the date of marriage.
He would then research the account and take note of the vital statistics, such as the number of posts and the follower count. In Paul’s view, the key driver in becoming a ‘high earning influencer’ is not necessarily the number of followers one has, but how often those followers engage with the posts and how powerful an influence that person has over the buying decisions of their audience. This is what makes a post go viral, a brand marketers dream in reaching their target market.
If a spouse sets up a private limited company in order to manage their Instagram account, then it is the value of the shareholding in that company that would fall to be considered as matrimonial property in the event of a separation.
After a bit of general research into the ‘influencer’ Paul would identify the business entity behind the Instagram account. For example, is it a limited company, a partnership or a sole trader.
Paul would then look to identify the income streams or profits. He would ask us to obtain copies of the latest financial statements and copies of any contracts to support the income streams which would assist him in determining whether the Instagram account generates a regular income and how robust or sustainable that income stream might be. Once this has been determined, Paul would value the business as a standard going concern.
Paul would also look at what drives the underlying value of the business.
He would analyse the follower count, the number of posts, the interaction between the followers and posts and he would identify any brands or sponsors associated with the account.
When evaluating the business he would also look at the risk factors that could impact the value business. For example, is the account holder in complete control of their own account and responsible for generating their own leads? Or does the account holder have an agent? Perhaps the account holder is part of an affiliate marketing database? This would need to be determined.
The value of an Instagram account is often intimately connected to the account holder and the goodwill that they command. A person’s lifestyle choices for example if brought to light, could compromise their reputation and undermine the value of their business.
The value of an account could be affected by a marital split if both spouses have contributed to the online content and built a rapport with followers. (This could be a concern for Jessica in our hypothetical scenario above).
After scrutinising all of the information outlined above, Paul would seek to calculate an estimated sustainable income stream or profit for the business going forward.
He would consider the associated risk factors of the business to select an appropriate multiple or range of multiples to apply to the sustainable income stream. This would then allow him to give a range of possible values for the business which can then be used by us when valuing the matrimonial property.
The views expressed in this blog do not form legal advice which is dependent on your individual circumstances. Each case is unique.
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