Protecting Your Rights & Advocating For Your Interests
When it comes to the division of property, divorce can start to feel overwhelming very quickly. When you are married to someone you build a life together, and it is a daunting task to dismantle that life piece by piece. While many people think about who will get the house or the car, royalty rights and intellectual property may not yet have crossed your mind. However, an interest in intellectual property and/or royalty rights is an asset that will need to be considered during a divorce. In this post, our Denver divorce attorneys at Halligan LLC will discuss how that process unfolds.
What Are Royalties?
Royalties are payments made to use certain property, such as a mineral interest, song, painting, or patent. For instance, the creator of a song may receive a royalty each time it is played, and an author may receive a percentage of net sales from the books that are sold. Royalties can continue long after the actual creation of the piece of intellectual property, so they can remain a source of income for many years and even a lifetime or more. This can lead to complications when it comes to dividing them during a divorce.
How Property is Divided in Colorado
Colorado is an equitable distribution state. This means that property is not automatically divided 50-50 between spouses. Instead, the judge will use a number of factors to determine what would constitute a fair and equitable division of a couple’s assets. The first step in the process is to identify all of the couple’s assets and then categorize them as separate or marital property. Separate property is most property obtained by either spouse independently before entering into the marriage.
On the other hand, marital property is generally any property, assets, or money, acquired by either spouse during the marriage. The judge will then divide the property based on the equitable division percentages that they decided on. The judge may consider the sacrifices made by each spouse for the marriage, such as forgoing their education or career to care for the household and children, as well as each spouse’s earning capacity, age, health, and ability to maintain a similar lifestyle after the divorce.
When Are Royalties Marital Property?
Royalties can be a bit of a gray area when it comes to the division of property, because the original material may have been produced independently by one spouse prior to the marriage, but the royalties continued to be received throughout the course of the marriage. In many cases, if the royalty money remained the separate property of that spouse throughout the marriage, the royalties will be considered separate property and will not be subject to equitable distribution. However, if their spouse helped to increase the value or amount of royalties during the marriage, or if the royalty funds were deposited into a joint checking account or were used for marital expenses, it is possible that they will be considered marital property, and would be subject to equitable distribution.
Additionally, intellectual property acquired during the marriage, even if it was acquired independently by one spouse, will be considered marital property. If the intellectual property was developed before the marriage, but the contractual right to receive royalties based on the property was created during the marriage, the royalty rights will be considered marital property, and will be subject to equitable distribution.
As you can see, these matters can become fairly complex, so if you have intellectual property assets and royalties, it’s important to consult with an experienced family law attorney to get a better sense of how these assets will be treated during a divorce.
Dividing Royalties in a Divorce
Many people don’t realize that they don’t have to leave decisions regarding the division of their assets up to a judge. In fact, a judge must only be involved if the spouses cannot reach an agreement on their own. Even when spouses cannot reach a decision independently, they have the option of utilizing the help of counsel or a neutral third-party mediator in order to help them come to an agreement.
Many parties have had success working with a mediator. However, if the parties are unable to come to an agreement on their own or with help, they can turn the matter over to a judge to decide. Regardless of whether they negotiate the matter on their own or allow a judge to decide, the first step will be getting an accurate valuation of the intellectual property and royalty rights. This will then be added to the pool of marital assets that must be divided.
The parties may decide on their own or with the help of mediators or counsel how they would like their assets divided. They may decide to split everything 50-50, in which case the royalty rights could be balanced out against other assets of a similar value. For instance, one spouse may take the royalty rights worth $50,000, while another spouse takes the sports car worth approximately the same value.
If the matter goes to a judge, they will use roughly the same methodology, however, the division may not be an equal 50-50, as Colorado is an equitable distribution state. In most cases, the division will be somewhere around that amount, but there are cases where the assets are distributed 40-60, and the judge has the discretion to change that amount based on the circumstances of the case.
Prenuptial and Postnuptial Agreements for Royalty Rights
If you have not yet filed for divorce, and you do not have a prenuptial agreement governing the treatment of royalty rights, it is a good idea to create a postnuptial agreement. These agreements can be executed at any point during a marriage, and allow you to stipulate that any royalty rights remain the separate property of the spouse who procured them.
Contact Halligan LLC in Denver, Colorado to Schedule a Consultation
If you have intellectual property assets, such as royalties, it’s important to protect them. Contact the experienced Denver, Colorado family law attorneys at Halligan LLC today, to schedule a confidential consultation.