When multiple parties jointly own real property, disagreements often arise with respect to the sale and division of their interests. Va. Code Ann. § 8.01-83 provides three possible solutions: a division, a sale, or a buyout. As mentioned in previous blog posts, these remedies are legally known as “partition in kind,” in which the property is physically divided into discrete shares to be owned by the parties, “partition by sale,” in which the jointly-owned real estate is sold and the proceeds divided, and finally, “allotment”, which occurs when one party buys out the other parties’ shares and keeps the property for herself.
- Partition in Kind
Partition in kind involves the physical division of the property and assignment of respective shares to the joint owners in proportion with their interests. Typically, developed properties are not well-suited for this approach because houses can lose a lot of their value if they are physically divided among multiple owners. This approach often works well, however, for undeveloped real estate. The textbook example involves a two-acre plot with a river exactly in the middle. Two joint owners with equal ownership interests in the property could be made whole by assigning them each one acre on either side of the river to do with as they please.
- Partition by Sale
A partition by sale occurs when jointly-owned property is sold and the proceeds distributed to the owners in proportion to their ownership interest. Va. Code Ann. § 8.01-83 provides that this remedy is available only “[w]hen partition cannot be conveniently made”, i.e. the property cannot be neatly divided between the parties through physical division. The drawback of partition by sale is the value (both pecuniary and sentimental) that is often lost when the property is liquidated in the expedited manner that often characterizes a judicially-ordered sale.
Allotment occurs when a co-owner is allowed to purchase the interests of the other co-owner(s), receiving credit for any improvements that enhance the value of the property. The Court can award full ownership of the property at issue to one or more co-owner(s) and order the remaining to pay out the divested owners. Similar to a partition by sale, allotment is an available remedy only when partition in kind is not feasible. Furthermore, the purchasing party must be financially able to buy out any other parties’ interests.
How are the Parties Interests Valued for Allotment Purposes?
Typically, the baseline value of a particular co-owner’s interest in real estate for allotment purposes can be calculated by determining their fractional interest in the total value of the property, as determined by appraisal or otherwise. The respective owners then each receive a credit for contributions to the property that enhanced its value. For example, if two individuals own a house appraised at $250,000, as equal tenants in common, and the first owner paid $30,000 for a porch addition that added $20,000 in value to the home, then she would be assigned a $135,000 interest in the home. She could, therefore, be ordered to pay $115,000 to buy out the interest of her joint owner. Note that in this scenario the contributing co-owner only received a credit of $20,000 (the increase in value), as opposed to her entire $30,000 investment.
Partition in a Divorce
As mentioned in a previous blog post, special rules apply if the joint owners are married and the partition occurs as part of the divorce. If you are married and seeking to partition property as part of a divorce, the best strategy would be to consult with an attorney who specializes in both family law and real estate.
Any analysis of the respective rights and responsibilities of co-owners of jointly owned properties who cannot reach an agreement regarding whether to keep the property or how to best dispose of it begins with an assessment of the feasibility of partition in kind.
If you are dealing with a contentious situation involving jointly-owned property that you would prefer not be sold in connection with a partition sale, then contact Keithley Law, PLLC, PLLC today at (703) 454-5147 to schedule a consultation to discuss the particulars of your real estate law issues.