A royalty is an amount of money paid to someone for using their property, such as pictures, music, or patented and copyrighted items. Any item that generates royalties is considered an asset because it produces income.
While the property that produces royalties is intellectual property (IP), they are assets that can be subjected to division in divorce proceedings.
Since California is a community property state, all assets and debts acquired during the marriage can be equally divided between spouses. While most assets are easily identified and separated, royalties can become complicated.
Royalties and copyrights are often a primary source of income for their inventors, especially for anyone who dedicated a career to intellectual property and had planned to retire on this income. Debates over IP are often heated even years after a divorce has been finalized.
Royalty and copyright income can last for decades. Before the divorce process starts, you must know how royalty rights and copyright ownership work.
In this article by our California divorce and family law lawyers, we will review how marriage impacts IP ownership and some ways to divide them.
Which Spouse Owns Intellectual Property in a Marriage?
You need first to understand how IP ownership is determined under California law. As mentioned above, all assets spouses acquire during the marriage, including intellectual property, are considered part of the marital estate unless something in writing says otherwise, such as a prenuptial or postnuptial agreement.
Intellectual property ownership must first be determined when determining how to split royalties. IP can fall under different categories, such as separate property, community property, or commingled property.
All separate property will belong to the creator of the intellectual property alone, but the marital and commingled property has to be divided equally. Precisely how royalties are split will depend on when the IP is created, developed, and patented, such as:
- When intellectual property is created and patented before getting married, it will most likely fall under the separate property to be kept alone by the creator after the divorce;
- When the IP was created and patented before getting married, but the value increased during the marriage from assistance from their spouse, it will likely fall under the commingled property;
- When the intellectual property was created before marriage but was patented after the marriage, it will likely fall under the commingled property;
- When the intellectual property was created and patented after getting married, it will likely fall under community property to be divided equally in a divorce.
Perhaps a Hollywood scriptwriter produces material used to make a movie while they are married. They own the content and agree with the producer and movie distributor to receive a certain percentage of royalties.
Since this agreement was made during the marriage, their spouse has 50% shared ownership over the initial copyright material and a right to the royalties, even though there is a contract with the producer to share ownership of those rights.
If the spouse who wrote the material has only partial royalty rights, they still must share it with their spouse. The most common way to change this division of royalties is to create a prenuptial or postnuptial agreement between spouses, essentially a contract.
For example, inventors and creators could ask a potential spouse to sign a prenup that would give them all the rights and royalties of their work. If they are already married, then a postnuptial agreement could be created with the desired terms.
These “contracts” are crucial for creators who don't want to lose control of the intellectual property they worked so hard to produce.
How Can You Divide Copyright Ownership in a Divorce?
In a typical situation where divorcing spouses don't have an existing contact discussed above over dividing intellectual property, this issue will need to be determined and is frequently a challenging topic, especially in high net worth or high asset divorces.
In most cases, the solution with the least resistance is to split the creator's rights equally, but this type of resolution gets heated quickly.
The federal copyright law says that when copyrights have shared ownership, one of the owners can't grant exclusive licenses to use the intellectual property. This means your spouse has the legal authority to block your ability to license the material you created.
In most cases, the best option is to negotiate full retention of your copyright in exchange for other assets of equal value. For example, perhaps you could offer your spouse other items of value in exchange for your copyrights, such as:
- retirement accounts,
- investment accounts,
- boats or vehicles,
- expensive jewelry,
- marital home or other properties.
However, this type of advanced negotiation can get complicated because it depends on both spouses valuing the copyrights equally. This is one of the main reasons you need a seasoned family law lawyer to help with the negotiations.
Spouses could decide to settle their royalty division outside of court. When this occurs, a neutral, independent expert usually is hired to investigate and assign a current and future value to any intellectual property. Afterward, each spouse is allotted a percentage.
The spouses could maintain or trade their percentage for other property. Often, a spouse will attempt a full buyout option, but negotiations and settlements will always depend on ownership percentages and specific circumstances.
Contact a Certified Family Law Specialist
Royalty rights differ from copyright ownership because royalty rights are the legal right to receive money when intellectual property produces income.
Many writers, actors, and musicians will waive their copyrights to get support from the production studios. For example, actors who are in movies don't get the copyright to the movie that was released but frequently receive a percentage of the money the movie earned, which is a form of royalty payment. The royalty rights are more easily divided than copyrights.
The flexibility makes royalty rights a possible target of hot debate in your divorce. If you believe your royalty payments will substantially increase over time, then you may want to take action to keep all your royalties.
If you believe they will decrease over time, you could offer your spouse a share of the royalties in exchange for other assets.
Your copyrights and royalties are often a crucial part of your income. You can protect them with legal representation from family law attorneys with experience handling an entertainer's divorce. Spouses could reach a mutual agreement on the division of royalties or take the matter before the court.
For more information on how a divorce in California affects intellectual property and royalties, contact the Los Angeles family law lawyers at Furman & Zavatsky. We offer a free case consultation by phone or use the contact form.