A clear understanding of how to approach intellectual property is vital when IP comes up in the equitable division of assets in a divorce case. This brief article explores what's at stake.

It is a truism that property rights are at the heart of wealth – both in terms of how it is acquired, sold and transferred – and intellectual property (trademarks, patents, copyright, image rights, etc) are central. Sometimes controversial (think of arguments about drug patents, or the idea that commercially useful ideas can even be “owned” at all), IP law can change. There are, for example, changes to stop the practice known as patent trolling, or adjustments to how copyright applies in new areas (the development of AI has big implications for copyright). No wonder that IP lawyers are in demand. 

If that wasn’t enough to chew on, there are issues around divorce when IP is part of a contested estate. Consider all the high-profile breakups involving musicians, film actors and novelists. A good deal of their wealth will, for example, reside in copyright form. An entrepreneur who has patented an invention and made millions of dollars from it similarly will face arguments about the patent if he or she gets divorced. And so forth. 

To discuss how the fields of marital law and IP interact is Gus Dimopoulos, managing partner of Dimopoulos Bruggemann PC. The editors are pleased to share these views; the usual editorial disclaimers apply to opinions of guest writers. We invite readers to respond, and enter the conversation. Email tom.burroughes@wealthbriefing.com

Divorces are complicated financially – splitting assets is rarely as simple as dividing by two. This is especially true for high net worth divorces, where significant sums of wealth and a wide variety of holdings are involved. Unlike divorces limited to more straightforward assets, high net worth individuals, along with their legal and financial teams, must divide assets that go beyond basic retirement accounts and cash savings. These types of divorces can involve sprawling real estate holdings, complex stock portfolios, and – in certain cases – substantial intellectual property and royalties.

The IP and royalties potentially involved in a divorce can range from trademarks and trade secrets to patents, copyrights, and perpetual earnings from music and other content. IP and royalties can be substantial, too: In a recent divorce I litigated, the husband had almost 200 technological patents to his name. While the types of IP and their nuances can vary, there are a handful of fundamentals that advisors should know in order to maximize their clients’ interests. 

Determining IP and royalty ownership isn’t straightforward. With more traditional assets like bank accounts and 401(k)s, it is relatively easy to conduct forensic work and divide assets. Financial institutions keep meticulous records of account openings, deposits, withdrawals, and interest, making it simple to match an account earnings with a marriage timeline. IP and royalties, however, are often a different story. They can have a paper trail – like the paperwork associated with a patent or trademark – but there are qualitative elements at play, too. For example: Did the idea behind that patent occur during the marriage or beforehand? And what role, if any, did the spouse play in its creation?

Valuing IP and royalties isn’t simple, either. Figuring out the precise value of IP can be equally difficult. Again, it’s much more complicated than the numbers printed on a bank statement. There are several different approaches for valuing IP. For example, an income-based approach determines anticipated future earnings, while a market-based approach derives value from the recent sale of similar assets. Because there’s no way to truly know an IPs potential value – no one can see into the future – there is always an element of subjectivity involved. And remember: When it comes time to value IP, make sure to engage an IP valuation expert. Royalties aren’t always considered marital property.

IP can be addressed in a prenuptial agreement. There are many myths and misconceptions about prenuptial agreements, especially when it comes to which assets can be protected and how. Despite its intangible nature, IP can be safeguarded with a well-drafted prenup. This is particularly important for individuals whose work or ideas may result in significant IP holdings over time, such as inventors, authors, or artists.

Having a clear understanding of how IP is treated in these agreements can provide an extra layer of protection in the event of a divorce. It is essential to work with legal experts who are familiar with the nuances of IP to ensure that such assets are adequately covered and clearly defined in the agreement.

Splitting assets equitably in a divorce is rarely easy – even without adding emotion into the equation – and IP and royalties are notoriously difficult to value. But with a clear understanding of how to approach this asset class, the divorcing couple, their financial advisors, and their lawyers can put together a comprehensive and fair strategy.

About the author

Gus Dimopoulos, Esq is managing partner of Dimopoulos Bruggemann PC, a matrimonial and family law firm based in Westchester County, NY and New York City that specializes in high net worth divorces.