Who Owns Intellectual Property in a Divorce? Key Considerations for Business Owners

Who Owns Intellectual Property in a Divorce? Key Considerations for Business Owners

Introduction
Intellectual property (IP) ownership is one of the most unique and complex issues to address during a divorce when there is a business involved. IP ownership in divorce is often overlooked, yet it can significantly impact business value. Unlike tangible assets, IP—such as patents, trademarks, copyrights, and trade secrets—is one of a kind. Its value depends heavily on how it’s used, protected, and defended. During a divorce, questions of ownership, valuation, and future use can quickly escalate into disputes.

Key considerations include: Who owns the IP? Has it been properly assigned to the business? What costs have been incurred to develop or protect it? And perhaps most critically, does the IP hold value outside the business or beyond direct competitors? Addressing these questions upfront is essential to protecting business and personal interests during a divorce.

Key Challenges in Divorce and IP Ownership

Ownership and Rights
Determining ownership rights is a fundamental challenge. For instance, if a patent has multiple inventors, each named inventor has an equal right to practice the invention unless they assign their rights. Even if all but one of the inventors assign their rights to the business, those unassigned rights could be sold or licensed—even to competitors. Similarly, trademarks, trade secrets, and copyrights must be carefully reviewed to confirm ownership and assignment.

Valuation of IP also presents unique hurdles. While some argue that IP holds immense value, others dismiss its worth until proven in court. Forensic accountants often value IP at $0 due to the complexities in determining its market value, ignoring its strategic importance to the business.

IP is often overlooked entirely during divorce negotiations. Failing to explicitly address intangible assets like customer lists or trade secrets can lead to unintended consequences. For example, retaining partial ownership of customer data could inadvertently enable competition against the business. Another example could be not preventing the other party from starting a business with the same family name (i.e. a restaurant), which would cause obvious confusion.

Real-Life Example:
In one case, a divorce attorney demanded access to a safe to view patents—unaware that patents are part of the public record. This misunderstanding not only delayed negotiations but also added unnecessary tension and expense. A mediator’s role in such situations would be to clarify these misconceptions early and focus on finding solutions.

The Role of Mediation in Resolving IP Disputes

Mediation provides a structured process for resolving disputes over IP ownership while preserving business value. A skilled mediator identifies issues early, ensuring IP ownership and valuation are addressed before negotiations derail. Collaborative discussions focus on treating IP as a vital business asset, fostering mutually acceptable solutions that prevent costly litigation.

For example, a mediator may uncover that key IP assets have not been assigned to the business, creating vulnerabilities. Addressing this upfront through mediation ensures a fair outcome and protects the business’s intangible assets.

Protecting Business Value During Divorce

To safeguard IP during divorce, assign patents, trademarks, and copyrights to the business rather than individuals. For trade secrets, define and document the information explicitly to avoid ambiguity. A mediator can explore points of agreement and resolve disputes by treating IP as a core business asset.

Ensuring the assignment of IP, avoiding ambiguity, and leveraging mediation to identify risks upfront can prevent significant financial and operational losses during divorce proceedings.

Next Steps

Intellectual property is more than just an asset—it’s often the backbone of a business. If you’re navigating a divorce involving a business, don’t let these critical IP assets become an afterthought. Work with an expert in business mediation and intellectual property to ensure they’re valued and protected.

Take the first step toward resolving your IP disputes. Schedule a free consultation today. Visit Prosperity Advising or call (925) 400-8482.

 

Also published in The Prosperity Perspective