Property settlements and distributions constitute a significant portion of divorce litigation. Parties partaking in divorce litigation typically divide the value of tangible assets, such as a home, a car, and other items obtained during the marriage. Additionally, parties divide assets with an assigned and discernable value, such as stocks, retirement funds, or pensions. While these types of assets are the majority of the property distribution allocated in a divorce, intellectual property assets also must be divided if acquired during the marriage. Intellectual property includes patents, copyrights, trademarks, trade secrets, and rights of publicity. Examples of intellectual property include inventions, books, movies, screenplays, photographs, artwork, music, etc. In Illinois, a marital presumption applies to all property acquired during the marriage, meaning if the property was acquired during the marriage, it is presumed to be marital property and is subject to equitable distribution between the spouses. This presumption also applies to intellectual property created or obtained during the marriage. Intellectual property, like tangible property, likely has a monetary value, and if the intellectual property was acquired or created during the marriage and is determined to be marital property, its value must be distributed equitably amongst the parties.
Most every court will award the actual intellectual property rights to the creator spouse (the spouse who actually created or obtained the intellectual property). Thus, the creator spouse has the sole management and control over the intellectual property, however, the non-creator spouse is still entitled to an economic interest in the work, if the work was created during the marriage. For example, if a spouse wrote a musical composition during the marriage, that spouse would hold the exclusive possession and control of that composition. The other spouse, however, could be entitled to the royalties and any other economic benefit earned from the music composition. Patents are often not subject to division in divorce because an inventor spouse is likely under contract with an employer to assign all patent rights to his or her employer, thus no marital property exists since it is the property of the company.
Another important thing to remember when distributing economic interests in intellectual property in a divorce is derivations of intellectual property. For example, if a spouse wrote a book during the marriage that became a movie, the initial intellectual property, the book, now has derivatives, i.e., the movie itself and the movie’s screenplay, all of which are potentially marital property, in addition to the initial book. Future iterations and derivatives of intellectual property created during a marriage can provide substantial value to the intellectual property and the non-creator spouse might be entitled to the economic interests that arise out of the derivative. These economic interests can include royalties, licensing fees, and profits if the creator spouse sells their intellectual property to a third party. To determine the distribution scheme amongst spouses of these derivations and the initial work, a court must engage in valuation.
The most difficult aspect of distributing economic interests in intellectual property in divorce is the valuation of the intellectual property and any derivations. The court must determine what portion of the value is attributable to the marital estate and what portion is attributable to the creator spouse’s separate property, if at all. Additionally, the court must value the ability to generate future income from the intellectual property. Even if the intellectual property increases in value after the dissolution of marriage, some of the increase in value may be attributable to work done during the marriage and is thus subject to equitable distribution to the non-creator spouse. The valuation process often requires an expert and can be costly in the litigation process.
Distributing intellectual property in divorce can be difficult, however, it is important to understand how these creative works are distributed between spouses as it can significantly impact the overall distribution of the marital estate. Whether you are the creator spouse or the non-creator spouse, understanding your rights when it comes to distributing intellectual property is imperative.
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