Intellectual Property in Settlements
When a married or de facto or couple splits up, the possessions of the relationship must be portioned between the parties in a property settlement. The courts have wide-ranging authority under the Family Law Act 1975 to divide the asset pool in a just and equitable way, depending on the specific circumstances of the case. The asset pool includes all the property of the couple, including either party’s intellectual property (IP). This article outlines the types of intellectual property that are considered by the courts and the ways that the court might divide these assets during a property settlement.
Disclosure of Assets including Intellectual Property
After separation, the parties have a duty of disclosure to reveal all of their debts and assets to each other, including more unusual items of property. For the purposes of a marital settlement, the term ‘property’ refers to both real property (land and built structures) and personal property. The latter category includes intangible or ‘incorporeal’ legal rights, such as intellectual property rights and copyright. In Yanner v Eaton, the High Court of Australia established that ‘property’ can be seen as a bundle of rights, or the relationship or degree of power that someone has over a thing. Intellectual property provides a tangible value that may increase over time, and as such it must be considered in a property settlement.
For example, an unpublished manuscript written by one spouse during the marriage is a marital asset that must be considered in a property division. It is easy to imagine the couple overlooking this asset at settlement, and the chagrin of a spouse when the resulting book is an international bestseller.
Types of Intellectual Property
By definition, IP is usually the product of human intellect. The types of IP that might be considered in a property settlement are:
- Industrial Design Rights
- Plant varieties
- Trade secrets
Prior to the twenty-first century, the most valuable intellectual property was inventions. In today’s technology-driven world, some of the most valuable IP relates to patents for circuitry and copyright on software. Some of the richest individuals in the world have built their empires on particular pieces of software, and if this IP had to be ‘divided’ in a marital settlement it may have a very significant impact on business interests.
Regardless of whether the intellectual property is the copyright on a (potentially never to be published) novel or the source code for Facebook, the court will look at the asset in terms of what it could attract on the open market today, and how it might contribute to the future income of either spouse in the future.
The Federal Circuit and Family Court (FCFCA)use a 5-step test to assess a property settlement. The first step is to compile a list of the liabilities and assets of the relationship into an asset pool and assign values to the individual pieces of property. The court will then assess whether the current division of wealth is just and equitable and if it is not, move on to the next step in the process. The third step is to examine the relative contributions of each party to the relationship, including direct and indirect, financial and non-financial contributions. After this the future needs of each party will be considered, factoring in any salary or resources that the parties will be able to access in the years to come. The final stage is to calculate whether the newly proposed division of assets is just and equitable.
While this is the established assessment method of the courts, there is no predictable outcome to a family law proceeding, as each case is assessed on its own merits. The court is hesitant to speculate without evidence about the potential future value of intellectual property, but the court will also be reluctant to prevent one spouse from enjoying any benefits that accrue from a piece of IP that was developed during the marriage.
Valuing Intellectual Property for a Property Settlement
An essential part of the 5-step process is the valuing of the assets of the relationship, but this is a harder task when the assets include intangible intellectual property. The asset is assessed according to current valuation, not the value that it might have in the future, but the current market value of IP will incorporate its likely future value. An expert valuer will be required to make an assessment if the parties cannot agree on the value of intellectual property.
Intellectual property is typically considered both property for division in a marital settlement and a potential ongoing financial resource for one or more of the parties. If you need advice about how IP is treated in a property settlement, please telephone our family lawyer team at Armstrong Legal on 1300 038 223 or send an email to make an appointment.