Partition

Partition: Dividing Joint Property Through the Courts

Sometimes joint owners can’t agree on how to manage — or divide — their jointly-owned asset. The difficulty might arise with real estate, or a business, or even financial accounts. When they can’t agree on what to do, the result might be what the legal system calls a “partition” proceeding.

Joint ownership

Two — or more — people can jointly own property. They might hold the property as joint tenants, or as tenants in common. The difference is significant, but they are still joint owners.

Married couples can (in some states) jointly own assets as community property. Depending on the state and the title, community property might include a “survivorship” right. In such an arrangement the surviving spouse would receive the entire property on the death of the other spouse.

For this discussion, though, we must assume that the joint owners do not hold their property together until one owner dies. Instead, imagine that they can’t agree on whether to sell the property, how to improve it, who should have the use of the property — or other management issues.

Real estate, business entities, financial accounts, even vehicles — all can be jointly owned. If two equal owners can’t agree on how to handle a bank account, dividing it should be a simple matter of mathematics. But what if the property is a home, for example?

How partition works

When joint owners disagree about how to manage property, one option is to involve the court system. A complaining owner can ask the court to “partition” real estate. The court’s first approach will be to divide the property into roughly equal shares.

Imagine, for instance, two people who jointly own a 40-acre piece of farmland. The court might be able to draw an appropriate line to divide it into two 20-acre parcels. It might make more sense, though, to divide it into one 25-acre parcel, and a 15-acre parcel with better access, or views, or water. The court will attempt to make the two shares roughly equivalent in value. Partition may not be an exact science, or follow obvious rules.

Sometimes, though, it is impossible to divide the property. Imagine that two people jointly own a home. Perhaps it is a 2,500 square foot house on a half-acre lot; it would be impossible to draw any meaningful dividing line. In a case like that, the court then turns to ordering the property sold, and the proceeds divided.

Dividing the property

Once the court has decided it must liquidate the property, it then must turn to dividing the proceeds. Generally speaking, joint owners start from a premise of equal ownership — but that may not always be the case. Perhaps they had differing interests from the beginning, or one joint owner seeks an additional share as a result of contributions to the property.

Take, for example, the partition action involving an Arizona couple in a recent Court of Appeals case. David and Diane bought a home together in 1988, and lived in it for a quarter century. During that time they had children together, borrowed money against the house, improved it and paid ordinary house-related expenses, taxes and insurance.

David and Diane were not married. Actually, they had been married before they moved in together; they divorced in 1972 but lived together even before they bought their house. Though it may add color to the background, the fact that they were unmarried partners makes no difference to the legal outcome.

Diane eventually moved out and filed a partition action. Once the court calculated that they could not resolve their differences amicably, it ordered the home sold and the proceeds divided. Then the question became how to make the division.

David argued that he had paid $19,000 for homeowner’s insurance, $71,000 for property taxes and $183,000 for the initial purchase. He also claimed that he had made all of the mortgage payments over the years, and had spent another $70,000 on improvements to the house. The trial judge ruled that he could recover the insurance, taxes and initial payment. The judge divided the balance equally between the two owners.

The Court of Appeals

On appeal, David argued that he should get credit for all of the mortgage payments and for the improvements. The Court of Appeals analyzed the nature of partition, and of joint tenancy, and applied the principles to David and Diane’s circumstances.

When David and Diane first bought the property, there was an existing mortgage in place. David made most, if not all, of the payments on that first mortgage. The Court of Appeals agreed with him that he should get reimbursed for those payments — to the tune of about $212,000 total.

Shortly after they bought the home, David and Diane signed a note secured by a second mortgage on the property. David testified that he received the $100,000 loan and used it to pay off his own debts. He agreed that Diane had signed only because the bank required both owners’ signatures. The Court of Appeals ruled that the second mortgage was not Diane’s obligation, and David should get no reimbursement for those payments.

Home “Improvements”

The home improvements raised an interesting question. Normally, improvements by one joint tenant can be returned to the contributor on partition. More accurately, the joint owner might recover the value of those improvements. The test is how much the improvements increased the value of the property, not how much they cost.

The wrinkle in David and Diane’s case was that the testimony indicated the property was worth more as a lot than as a home. In the intervening years, the neighborhood had become a pricey, exclusive enclave — and any buyer would view the property as a “tear-down.” In other words, it didn’t matter how much David had improved the property, because it would be worth exactly the same amount. The court ruled that he did not get that money returned to him. Egizii v. Egizii, April 12, 2018.

David and Diane’s story depended on their unusual facts. That is common; partition is almost always a complicated, fact-driven calculation. Their circumstances provide some illumination of the legal principles involved. Not enough, though, for their case to be formally reported; the Court of Appeals decided that it would be an unreported “memorandum” decision. That means it does not have precedential value, even though it does indicate how another court might view similar facts.

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