SJC: Ex-Husband Entitled to Share of Future Royalties for Best-Selling Novel, Night Circus

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SJC: Ex-Husband Entitled to Share of Future Royalties for Best-Selling Novel, Night Circus

Night Circus Cover

Massachusetts divorce lawyer Jason V. Owens reacts to a recent case awarding a former husband a share of future royalties in divorce from author wife.

Attorney Jason V. Owens

Attorney Jason V. Owens

AUGUST 6, 2015 – In a slip opinion for Canisius v. Morgenstern, 14-P-0341, announced today, the Massachusetts Supreme Judicial Court (SJC) held that an author’s right to receive future royalties constitutes a marital asset that can be assigned to the author’s former spouse in a divorce. The case focused on the royalties received by author Erin Morgenstern for her best-selling 2012 novel, the Night Circus. The SJC held that Morgenstern’s future royalties for Night Circus were a marital asset that were subject to division in Morgenstern’s 2013 divorce from her former husband, Peter Canisius.

The case features a clear, well-written opinion that articulates the dividing line between interests that are so uncertain that they are deemed mere “expectancy” interests – and therby excluded from marital division – and the vast majority of assets that are subject to division in Massachusetts divorce cases. The opinion provides several examples of non-divisible “expectancy” interests, including a spouse’s potential employment earnings in the future, the uncertain value of an untested scientific patent, and a spouse’s unvested interest in a will or trust that “may never be achieved due to death, illness or simply market factors”.

Divorce manuals - Lynch & Owens

Most divorce books don’t involve royalties.

In contrast to these examples, the SJC found that Morgenstern’s right to receive future royalties for Night Circus constituted a marital asset that should have been divided in the divorce. The opinion notes that Morgenstern’s contractual right to receive future royalties is “analogous to a party’s interest in the payment of pension rights which has been recognized as marital property subject to division.” Accordingly, the SJC found that the probate and family court judge could (and should) have awarded Canisius a percentage of the future royalties “on an if and when received basis” as part of the divorce.

In 2006, Morgenstern married Canisius, a chemical engineer who earned $90,000 per year. Between 2006 and 2010, Canisius provided reliable financial support to Morgenstern while she wrote Night Circus, helping the author avoid “starving artist” status. By 2010, Morgenstern had largely finished writing Night Circus. In 2011, Morgenstern and Canisius separated permanently. Although Night Circus was written before the separation, Morgenstern engaged in a busy book tour after the separation, including more than 70 promotional appearances that contributed to the book’s success. Night Circus was ultimately published in July 2012, grossing more than $3 million in royalties in the following 16 months. The couple, who lived in Boston, were divorced following a multi-day trial before Hon. Brian J. Dunn of the Suffolk Probate & Family Court in late-2013.

Following trial, Judge Dunn awarded Canisius a lump sum payment of $570,000 as “his share of the royalty and book-related earnings [that Mogenstern] has received to date from the publication of [her] novel”. However, Dunn’s decision specifically excluded Morgenstern’s future royalties from the division of assets, where Dunn found future royalties were a mere “expectancy interest” due to their uncertain value. Canisius appealed Dunn’s decision, arguing to the SJC that he should have been entitled to a percentage of Mogenstern’s future (i.e. post-divorce) royalties for Night Circus.

SJC: Trial Court Had it Wrong

The SJC reversed Dunn’s decision and remanded the case for additional trial to determine Canisius’s share of the future royalties. The Court found that Mogenstern’s future royalties arose out of vested contractual rights that were subject to marital division under Massachusetts law. The Court noted, for example, that even if Morgenstern died, her estate would be entitled to continue receiving royalties after her death. Such an inheritable asset, the Court observed, was more substantial than a mere “expectancy interest”.

Quoting a previous decision, the SJC held:

[W]e are unwilling to deny one spouse, who contributed to the acquisition or appreciation of property during the marital enterprise, “the right to share in what may be the most valuable asset between the spouses” on the basis of the uncertainty or future contingencies bound up in that asset.

For his appeal, Canisius argued that “one spouse’s direct contribution of skills or talent to a marital asset should [not] outweigh the different but equivalent marital contributions of the other spouse” when it is clear that the spouses “made distinct but equal contributions to their marital partnership.” The SJC appeared to accept Canisius’s general point, but found the facts did not fully support Canisius’s claim. The Court noted, for example, that Morgenstern performed substantial promotional work for Night Circus – including more than 70 personal appearances – after she separated from Canisius in 2011. As such, the Court found that at least some of Morgenstern’s work on Night Circus occurred outside of the “marital partnership”. (The Court’s rejection of Canisius’s argument regarding his “equal” contribution to Night Circus will reduce his share of future royalties when the issue is addressed by Judge Dunn on remand.)

Indeed, it should be noted that the remand to Judge Dunn does not guarantee Canisius a major share of the future royalties for Night Circus at all. Had Judge Dunn’s original findings stated that Dunn considered future royalties when calculating the lump sum figure of $570,000, the appeal may have never happened, given the trial judge’s discretion when making factual findings. Instead, Dunn excluded future royalties from the division of assets as a matter of law, creating an appealable issue for Canisius. On remand, Dunn could still limit Canisius’s interest in future royalties. However, there is little question that Canisius will receive at least some of the future royalties, making his appeal a worthwhile investment. (Compliments to Canisius’s attorney, Michael P. Friedman, for the job well done for his client.)

Today’s opinion essentially instructs Judge Dunn to award a percentage of the future royalties for Night Circus to Canisius on an “if and when received” basis. However, the decision also provides Dunn with significant latitude when calculating Canisius’s exact share after further trial, suggesting, “for example, a sliding scale of decreasing percentages, which has a specific termination date”, as an appropriate solution.

There are several broader conclusions that can be drawn from the opinion:

  1. It is worth observing that any clear, well-written appellate decision that summarizes broad areas of law will be quoted by attorneys and judges in the future. I have been critical of the lack of clarity in several recent SJC opinions, and today’s decision stands as a fine example of clear, well-reasoned legal writing. For that reason alone, the opinion is likely to be cited in future asset division cases. (Unfortunately, a footnote indicates that the well-written decision was authored by former Chief Justice Rapoza, who just retired.)
  2. The case amplifies the Court’s longstanding position that “marital assets” are broadly defined under Massachusetts law, and that probate court judges should err on the side of inclusion when it comes to defining which assets are subject to division.
  3. The case also reinforces the principles articulated in Casey, where the Appeals Court expressed disfavor for excluding a spouse’s future pension payments from the division of assets on the grounds that the pension payments provided a “stream of income” from which the spouse could pay support. The better practice, today’s opinion suggests, is for judges to treat the asset as an asset, with the spouse to receive a direct percentage following the divorce.
  4. Today’s decision is especially relevant in light of the Massachusetts Alimony Reform Act, enacted in 2011. Under the act, the relatively short duration of the parties’ marriage in this case (approximately six years) would have capped alimony for Canisius at about three years. In contrast, there are no statutory durational limits on how long a former spouse may receive a percentage of a recurring payment on an “if and when received” basis. Even if Canisius only receives royalty payments for a handful of years, it’s a safe bet that these payments will continue for a longer period than alimony would have under the Massachusetts Act.

It is always tempting for a probate court judge to treat one spouse’s right to receive payments from an asset earned during the marriage as a “stream of income” from which that spouse can pay alimony after the divorce. Today’s opinion reinforces the principle that payments received by a spouse from an asset – whether the asset is a pension, annuity or book royalty deal – is not the same as wages received by the spouse from an employer for post-divorce work. Guaranteed payments from an asset will still be divided as an asset, even if the payments look a bit like wages – if you squint your eyes – because the party “gets paid” from the asset once a month.

In contrast, actual wages received by a spouse for work performed after the divorce are not assets. Wages and salary are ordinary income, and the best a divorcing spouse can hope for is a limited (and modifiable) share of these future earnings through alimony or child support.

About the Author: Jason V. Owens is a Massachusetts divorce lawyer and Massachusetts family law attorney for Lynch & Owens, located in Hingham, Massachusetts.

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By | 2017-03-21T03:10:54+00:00 August 6th, 2015|Categories: Division of Assets, Divorce, News, Updates|Tags: , , , , |Comments Off on SJC: Ex-Husband Entitled to Share of Future Royalties for Best-Selling Novel, Night Circus

About the Author:

Jason V. Owens is a Partner and Senior Counsel at Lynch & Owens, and is a frequent contributor to the Lynch & Owens Blog on subjects including Massachusetts divorce, child custody and support, domestic violence, equity and estates litigation, and complex financial probate and family litigation. Attorney Owens can be reached by phone at (781) 741-5000 or email [email protected], or visit his bio page under https://lynchowens.com/attorneys/.