With the uncertainty of the economy, many California home and business owners have elected co-ownership when purchasing a home, commercial property, or business. A partnership interest in a business can be a wise investment, but can also lead to the demise of the business if the relationship goes sour. What happens if one person disagrees with the way the business is run or how the real estate is being used? What if one person wants to move away or retire? Can this disgruntled owner part ways and still reap the benefits of his or her investment? When there is a quarrel between co-owners or partners, hiring an experienced business lawyer or real estate attorney to file a partition action may be the best and only way to settle the dispute in a fair and just manner.
What Is A Partition Action? A partition action allows the court to divide property equally between interested parties. California Code of Civil Procedure section 872.010 et seq. contains the rules regarding partition actions. Since many partition actions involve real estate, this type of lawsuit is commonly associated with real property. However, partition may also be applied to dissolving any type of partnerships. This is known as an action for partition of partnership property. Although personal and real property can be divided through a partition action, community property (property acquired during a marriage) cannot be partitioned by this section of the California code.
Filing A Partition Action. The procedures for filing a partition action can be complex and it is important to consult a litigation attorney with experience with partition actions to assist you. In California, a co-owner who wishes to end a joint relationship and distribute shared property must file a complaint with the court seeking a partition. If the action involves real property the plaintiff should immediately record a notice of the pendency of the action, “lis pendens” at the recorder’s office in the county where the property is located to prevent the other partner from taking out loans on, selling or otherwise encumbering the property.
The law that deals with partition contains a number of complex “joinder” requirements relating to who must be named in the action. All people who “have or claim an interest in the property” need to be “joined” in the action. It may be difficult for a person to navigate the joinder requirements without the assistance of a lawyer.
The Role of the Court. The court determines if the property should be partitioned. Unless the right to partition is validly waived by the parties or involves the assets of a partnership, partition of property is a matter of right. Thus, the court will allow the partition unless, for some reason it is against the interest of the parties. The court considers many factors, such as the character of the property and expenses, to determine if the partition will be in the best interest of the parties.
If the court determines that the property should be partitioned, the court will make an “interlocutory judgment” to determine the interest of the parties and manner of partition. An interlocutory judgment is a temporary order by the court given before a final decision is made. The court may also issue an injunction to preserve the property while the case is pending. An injunction prevents the owners from changing, destroying, or interfering with the business or property before the court makes its final ruling.
What The Parties Can Expect. Usually the court will order that the business or property be sold and the proceeds divided. If there is a way to divide the property without selling it, a court will do so but usually that is not the case. This is also true in an action for partition of partnership property. The court will determine the value of the business by calculating its assets, including goodwill, and divide the assets in accordance with the interest of the partners in the partnership. While the concept of division seems relatively simple, sometimes the court cannot equally divide property because such a division would be unjust.
Once the property is sold, each party will divide the net proceeds from the sale in accordance with their interest. Since a partition action may be necessary to settle disputes between co-owners amicably, and such an action can be costly, the court may allocate the cost of the partition between the parties in accordance with their interest or any other manner that is fair and just.
Settlement. The parties may also agree to the terms of a partition through a settlement agreement. They can agreed to have the property or business appraised or sold and agree on a method of division. Settlement of a partition is generally less costly and stressful for all parties involved.
The co-author of this article, Kristal Bradford, is a former associate with Adina T. Stern, a Professional Law Corporation. Adina T. Stern has been litigating partition actions for over three decades on behalf of property owners and business owners in Los Angeles County, Orange County, and throughout California.