The breakdown of a relationship is tough.
It's emotional, expensive, and let's be honest—nobody gets married or enters a relationship of permanence, thinking, "One day, we'll argue over who gets the rights to my groundbreaking invention or best-selling novel." Yet, intellectual property (IP) is often one of the most valuable assets a person can own. Without proper precautions, it could end up being part of the marital property pool.
So, how do you keep your creative empire intact when love takes a legal detour? Let's explore how to "divorce-proof" your IP and keep your business, brand, and creative works safe from a messy breakup.
Intellectual Property: Yes, It's Up for Grabs
In Canada, the laws that apply when you separate from a spouse vary based on relationship status. For example, if you are legally married, the Federal Divorce Act will apply to property division. If you are common law, there is no presumptive right to the division of property under provincial legislation; however, equitable claims can be sought under common law.
While parties often think to protect their real property interests, they can frequently overlook the need to explore all areas of property, including corporate interests and intellectual property. That's right: your bestselling novel, hit song, or patented gadget might not be yours alone in the eyes of the law. That's where proper planning comes in.
Ways to Shield Your IP
Unlike a jointly owned house or a car, it is unlikely that you will wish to sell your IP to satisfy any value owing to an ex-spouse. Further still, the idea that an ex-spouse may make a trust claim in your IP, which can lend to them having a potential ownership interest can often be unfavorable, to say the least.
We all have car insurance—not because we have any intention of getting into an accident, but to ensure that our interests are protected if the worst were to happen. The same goes for property interests when entering into a spousal relationship.
Examples of ways in which you can seek to protect such interests include:
- Incorporating a Business or creating a Trusts or
Licensing Agreements:
- If your IP is owned by a corporation, an LLC, or captured under a Trust, it is important to note that while it may be considered business property, this does not necessarily protect it from division of the value of the asset in the instance of separation.
- The value of a business can be divisible, so setting out how the value of this asset is to be dealt with in the instance of separation can reduce conflict and unexpected surprises if the worst is to happen.
- Cohabitation Agreements and Marriage Contracts (Known
as Prenuptial Agreements in the USA):
- Much like one may reassess their existing insurance with the addition of a child, parties should similarly assess their financial circumstances if contemplating moving in with a party or entering into a relationship of some permanence. Setting out your intentions in an agreement is one of the best ways to plan ahead when things are amicable.
- While there are certain things that parties cannot contract out of preemptively, such as parenting time, decision-making responsibility, and the right to possession of the matrimonial home, the division of property in the instance of separation is not one of them. This includes setting out how to deal with your IP and your corporate or trust interests in the instance of separation.
What the Courts Have Said: Canadian Cases on IP & Divorce
While intellectual property division in family law matters has not been the subject of widespread case law in Canada, a few cases provide some valuable insights:
This landmark Supreme Court of Canada case introduced the concept of unjust enrichment and constructive trusts. While it wasn't about IP, it set a precedent: if one spouse makes significant contributions to an asset (whether financial or otherwise), they may be entitled to a share—even if they don't technically own it. That could mean an ex-partner who played a key support role in the development of your IP could have a claim.
This Supreme Court decision involved an animation series idea that was taken and used without credit or compensation. While this wasn't a family law matter, it reinforced the importance of clear ownership agreements over creative works. If you don't have proper documentation of ownership, things can get messy—whether you're dealing with a sneaky business partner or a soon-to-be ex-spouse with a sudden interest in "jointly created" assets.
Final Thoughts
Separation is complicated enough without dragging your intellectual property through the legal battlefield. By planning ahead, using the right legal tools, and keeping solid records, you can be proactive in setting out how you wish for your property interests to be dealt with if the worse were to happen.
There is no shortcut to doing this. While the Courts have upheld agreements drafted at a kitchen table, without formally valuing the assets at issue and engaging in what may be deemed fulsome financial disclosure, there are instances where the Courts have stepped in and set aside such agreements if the facts support such action. It is therefore recommended to protect yourself as best as possible by having a comprehensive agreement drafted by counsel that is based on full and frank financial disclosure and entered into freely and without duress.
Afterall- while getting that cheap car insurance may have been great on a monthly basis, getting into a car accident only to then learn that your insurance does not properly protect you can result in a far more costly endeavor.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
