Joyce, a successful singer/songwriter, recently married her high school sweetheart. Aspiring novelist Kristen and her agent have been married for eight years. And Jack has spent countless hours in his garage workshop honing his creations hoping for a big payoff someday with the help of his wife of eleven years. Each of these people may find themselves facing a tricky issue if they decide to divorce – what to do with the royalties earned from their creative works or inventions.
Dividing Property in a Divorce
California is one of nine states that use community property as the basis for property division. This means that property and debts obtained during a marriage are presumed to be owned 50/50. Splitting a bank account between two people is fairly easy. However, dividing less tangible assets – like royalties – typically is more difficult.
Royalties, as Property
A royalty is a sum of money paid to another person in exchange for using their property. Royalties may be paid to use someone’s:
- Art and photographs,
- Books, short stories, and other types of writing,
- Minerals (sometimes these are called mineral rights instead of royalties), and
- Items that are patented or copyrighted.
An item that generates royalties is an asset, as is the income generated. In fact, royalties typically are reported as business income.
Property division can be a major part of a divorce case. A couple’s assets generally are separate property, community property, or commingled. How royalties are split may depend on when a royalty-producing work was:
- Created – Was it before or after the wedding?
- Patented – Was the invention developed during the marriage with contributions from the spouse.
- Managed – Did the spouse contribute to the work’s success during the marriage.
Generally, work product or inventions created or developed during a marriage are community property. If the work was done prior to the marriage, but the spouse contributed to its success in some way, royalties could be split. Finally, an invention created during a marriage but not patented until after the marriage may still generate income for the ex-spouse.
A divorcing couple can certainly address royalty issues when negotiating their marital settlement:
- Estimate the current and future value of an asset, then assign percentages to each party.
- Swap ownership and royalty rights for property of equal value. For example, one spouse might keep 100% of a music portfolio and give the other spouse 100% of the Malibu beach house.
- Agree on a split of ownership and royalty rights. This can even be done in a way that slowly phases out one spouse.
Complicated divorces involving royalty-producing assets typically involve more than state divorce laws.
Royalties May be a Double-Edged Sword.
They are an undeniably important asset and a potential source of income. The spouse who produces the intellectual property or work of art may want to keep all the royalties. However, that person’s spouse may be entitled to a percentage.
Judy Burger is a California Certified Family Law Specialist, and founder of the Law Offices of Judy L. Burger. She uses her extensive experience with business-related valuations to help clients with business and royalty properties. Please call our offices at 415-293-8314 to set up an appointment with one of our attorneys. We assist clients along the Northern to Central California Coast.