Dividing intellectual property in divorce presents unique challenges. Intellectual property (IP), like patents, trademarks, and creative works, can be challenging to value, especially because such assets may generate income or increase in financial value long after the marriage ends. Because these assets are intangible and depend on future potential, valuation is an essential step when dividing intellectual property in divorce.
At Weiner Law Group, our New Jersey family law attorneys regularly handle complex property division cases involving business interests and intellectual property. We work closely with financial experts, appraisers, and forensic accountants to ensure our team accurately identifies, values, and protects every client’s marital assets. With decades of experience, our firm provides the knowledge and advocacy clients need to navigate high-asset and high-stakes divorces. Contact us today by calling us at 973-403-1100 for a consultation.
Types of Intellectual Property
Intellectual property includes intangible items such as inventions, creative works, and branding. You gain rights in the property in different ways, and those rights last for different lengths of time.
Patents
A patent gives the holder exclusive rights to make, use, or sell an invention for about 20 years. Its value depends on how profitable the invention is and whether someone could license or sell it successfully. Royalties, payments made for the right to use the invention, play a significant role in determining its worth.
Trademarks
A trademark protects brand identifiers like names, logos, or slogans that distinguish products or services. Because trademarks can last indefinitely if renewed, their value often reflects the business’s reputation, customer loyalty, and revenue generated through use of the mark.
Copyrights
A copyright protects creative works such as books, music, art, or software. The creator has exclusive rights to reproduce or distribute the work. In divorce, the value often depends on ongoing or expected royalty income from these works.
Trade Secrets
Trade secrets include confidential business information like formulas, customer lists, or manufacturing methods that provide a competitive benefit. Businesses do not register trade secrets with any agency, so experts determine their value based on the profits or market advantage they generate.
Licensing Agreements
If one or both spouses receive ongoing payments from licensing intellectual property, courts may treat those contracts as marital assets. Courts often consider both the IP itself and any licensing income when dividing assets.
How New Jersey Courts Divide Intellectual Property in Divorce
When couples divorce, they divide marital property—assets either spouse acquired or earned during the marriage. Separate property, by contrast, includes assets owned before marriage or received individually as a gift or inheritance. Separate property generally stays with its original owner.
New Jersey courts divide marital property fairly based on factors like each spouse’s contributions, income, and overall financial circumstances. Before courts can divide marital property, they need to determine how much it is worth.
Intellectual property a spouse creates during marriage is generally marital property, subject to division. Yet, determining who gets IP in divorce poses unique hurdles, including:
- Predicting how much the IP will earn or appreciate in the future;
- When both spouses contribute to an invention or creative work, determining each spouse’s ownership rights and share of profits;
- Separating IP related to a business, such as a brand name or design, from the business itself; and
- Limitations on selling or reassigning certain IP, such as professional licenses or creative works, without consent from the creator, co-authors, business partners, or license holders.
For example, if one spouse developed a patent during the marriage, the other may be entitled to part of its current or future earnings. However, if a spouse began the invention before the marriage but completed or patented it afterward, determining what portion is marital may require complex calculations. Experts may need to separate the pre-marital and marital portions of the work or financial investment to determine what qualifies as marital.
IP Valuation in Divorce
IP valuation in divorce is rarely straightforward. Courts and financial experts use several approaches to estimate the IP’s fair market value. In many cases, experts combine multiple methods for greater accuracy, particularly when the IP is newly developed or exists in a niche market.
Income Approach
The income method estimates value based on how much income the IP is expected to generate, such as royalties, licensing fees, or profit shares. Analysts project those future earnings and then discount them to present value to reflect what that future income is worth in today’s dollars.
Market Approach
The market approach compares the IP to similar assets that buyers or companies have sold or licensed. It works best for patents or trademarks in active markets with reliable data on comparable transactions or similar deals between other parties.
Cost Approach
Experts often use the cost method to estimate the cost of recreating or replacing the IP. This approach works well when the asset has not yet produced income or when no comparable market data exists.
Combination Approach
Experts sometimes use a combined approach, mixing elements of the income, market, and cost methods, to produce a more accurate and balanced valuation. Consider an example where one spouse created a software program during the marriage that now generates annual licensing fees for use by several companies. An expert may:
- Use the income approach to estimate how much the software will likely generate over the next five years, then discount that future income to its present value to reflect what those earnings are worth today;
- Next, use the market approach to research recent sales or licenses of similar software in the same industry to compare price ranges and royalty rates; and
- Finally, the cost approach should be used to consider how much it would cost another company to develop similar software from scratch.
After weighing each method, the expert might assign 70% weight to the income approach, 20% to the market approach, and 10% to the cost approach to produce a blended, realistic valuation. Courts often rely on this type of mixed analysis when a single approach doesn’t fully capture an IP asset’s market potential and development value.
Consult Weiner Law Group
Dividing intellectual property in divorce requires legal insight and financial precision. The family law attorneys at Weiner Law Group have extensive experience handling these complex cases. We help clients protect their creative, business, and financial interests through careful valuation, strategic negotiation, and courtroom advocacy when necessary.
Our attorneys fully understand how to value and handle these assets in accordance with both family and intellectual property law. Contact Weiner Law Group today to schedule a consultation and learn how our New Jersey divorce attorneys can help you navigate the division of intellectual property.