Creators of original works such as paintings, sculptures, films, literary works, have an intellectual property right – called copyright – in the original works. Copyright gives the owner an exclusive right to control the copying and distribution of their original works. Copyright can be classified as “relationship property” under New Zealand’s Property (Relationships) Act (PRA).

When a couple separates, all relationship property is divided on an equal sharing basis as a general rule. This article offers practical tips as to how copyright is treated, valued and divided, and how copyright can be removed from the relationship property pool.  

The Supreme Court has confirmed that copyright created during a relationship is relationship property and therefore subject to division between partners under the PRA. The questions copyright owners might have arising from this include:

• How does the copyright get valued and divided?
• How can a copyright owner protect their copyright so it does not become relationship property?

Supreme Court decision – Copyright as relationship property

Ms Alalääkkölä, an artist, created a number of artworks during her 20-year marriage to Mr Palmer. Following their separation, Mr Palmer claimed part ownership of the copyright in the artworks, saying the copyright was relationship property. If Mr Palmer did have part ownership of the copyright, that would give him the right to produce copies of the artworks for sale.

The parties agreed that the physical artworks themselves were relationship property because they were created during the relationship. What was at issue was whether the copyright was relationship property. If so, how can it be valued and divided?  

The Supreme Court found that the copyright is classified as relationship property if it is "acquired" during the relationship. In this case, the Court determined that the copyright in the artworks was acquired as a result of the joint effort within the relationship, particularly since Ms Alalääkkölä's role as an artist contributed to the family’s income. As a result, the Court ruled that the copyright is relationship property and must factor into the division of property.

How is the copyright divided?

The Supreme Court found the copyright should remain in the creator's ownership, and Mr Palmer, as the partner, should receive a compensatory adjustment from other relationship property to cover his entitlement. This recognises the Copyright Act objective to protect creators' creativity and ability to control the commercialisation of their work. It also means that a creator's former partner cannot utilise the copyright themselves.

The Supreme Court gave an example of a copyright owner's fear that their former partner may exploit copyright in ways that detract from the value of future works – for example, by creating merchandise which profits the former partner but damages the reputation of the copyright. The Court noted that the copyright owner retains the exclusive right to be identified as the author, or to sue someone for using their work in a derogatory manner. Any resulting compensatory damages therefore also remain with the creator.  

How is the copyright valued?

Relationship property is usually valued at the date of a Court hearing of an application for division of that property, using market value. Valuing copyright can be a difficult task, particularly if there are different categories of works.  For example, in this case there were four categories of works: incomplete, unsuitable or damaged works; private artworks never to be sold; unique one-off artworks; artworks which are the subject of multiple copies.  

Ideally, parties can reach agreement on a value to enable a just division of relationship property. If it cannot be agreed, the partners will likely need to obtain independent valuations of each of the works in order to determine their value.

Implications for copyright owners

This ruling carries significant implications for copyright owners about how their intellectual property is treated in the event of a separation.

• Copyright can be relationship property: If you hold copyright to work you created during the relationship, its copyright may be classified as relationship property. This could result in a division of the copyright or compensation to your former partner of its value. This may not sit well with a copyright owner, who was free to unilaterally manage and control the copyright without reference to their partner during the relationship. Suddenly, on separation, the copyright is subject to equal sharing with their partner.
• Protecting the value of copyright: Copyright can be an important part of a creator's reputation and future earnings. Upon separation, care should be taken to avoid harming a creator's reputation or future income stream from the copyright.
• Protecting the value of the other partner: On the other hand, the Court recognised the need to acknowledge the value of the other partner. The partner who did not create the copyrighted work may have contributed in non-financial ways, such as providing emotional support or creative inspiration.
• The complexities of valuing copyright: It can be difficult to fairly value copyright, particularly where there are different categories of works or multiple copyrights. For example, a couple who own a photography business where partner A takes the photos and partner B edits the photos: partner A has copyright in the original photographs and partner B has copyright in the edited photographs. Another example is where partner A takes the photographs and partner B designs the set used for the photo shoots. More problematic, if a third party owns copyright in a work intermingled with partner A's photographs. A labyrinthine task it would be to value one copyright in a work containing multiple copyrights.  
• Insufficient relationship property assets to compensate the other partner? It's easy enough to say the other partner gets compensation for the copyright from other assets, but if there are insufficient other assets to cover the compensation, the Court can order other ways to compensate them. For example, the Court could order that the copyright owner pays compensation to the other partner from their separate property. Alternatively, the Court could defer the other partner's entitlement and require the copyright owner to pay them from future income.  

Tips for copyright owners

If you own copyright to creative works and are concerned about the possibility of it being classified as relationship property, there are steps you can take to protect your interests:

• Keep records of when and how each work was created, particularly if you believe certain works were developed before the relationship began or after separation. This can help establish whether a work’s copyright might be relationship property.
• Get a prenup. In some cases, you may want and intend for your partner to receive value for copyright acquired during your relationship. If that is not your intention, you may want to consider entering into a "contracting out agreement" (sometimes called a prenup). Under a prenup, partners can agree about ownership of their property and how their property is to be divided upon separation.  

Key takeaways

When a couple separates, the division of property can be a sensitive and complex process. Both copyright owners and their partners need to understand their legal rights and exposure. Legal advice can help you come up with creative solutions for the sharing of relationship property.

Whether you need advice on a prenup, or advice about the treatment of copyright in your relationship or upon separation, reach out to our team of experts.