Maximize Future Marital Settlement Agreement (MSA) Royalty Earnings with these Drafting Tips from Cheryl Hodgson, Esq.

Trademark, copyright, music law & digital media attorney Cheryl Hodgson of Hodgson Legal

The best family law attorneys know when to include outside experts on their team.  When it comes to intellectual property assets, family lawyers turn to attorney Cheryl Hodgson of Hodgson Legal for her expert advice.

As part of our collaboration geared towards helping family lawyers and their clients navigate the arcane world of intellectual property assets, we invited Ms. Hodgson to share three key drafting tips for family lawyers to consider in cases when the marital assets include royalties:

1.     Audit rights.  Audit rights are a vital component to any agreement that includes payment of royalties, whether or not a dissolution is involved. Without the direct audit rights as well as the right to participate in an audit of the source of the income stream, there is no means by which to verify the accuracy of accountings from an ex-spouse, or payments received by the ex-spouse. Moreover, without an audit to identify an ex-spouse’s non-compliance with the marital settlement agreement (“MSA”), it can be difficult or impossible to identify evidence to support legal action and hold the ex-spouse accountable for failing to properly pay. Therefore, one should always include a thoughtful audit clause in the MSA that grants access to the contracts that create the income stream. Moreover, rights to piggyback on direct audit rights are imperative.  (See this post for more audit clause drafting tips.)

2.     Earnings Periods.  The MSA should address dates governing receipts and payments prior to the date of dissolution since payments may be earned long before they are received. For example, in the case of foreign performance royalties from the broadcast of music on television and in film, earnings during the term of the marriage may not be received or paid in the United States for a year or even longer.

3.     Transfers of Title.   A court order detailing rights in the divided assets should be drafted in a manner that is both clear, detailed, and binding upon third party payees of royalties. Entertainment related companies are often loathe to make changes in existing payment instructions without clear agreements, letters of directions, and in many cases, a court order that clearly identifies the assets and the parties covered.

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Don’t wait for the next post in our ongoing collaboration – read more from Ms. Hodgson today on her own website.  Better yet, for a personalized consultation, call Ms. Hodgson today at 310-623-3515 and follow her on Twitter @CherylHodgson.