California Partition Law Blog
Partitions sales and divorce sales are two different ways that a property can be sold. One difference between the two is that in a partition sale, the court usually decides the proportion of ownership and how the proceeds are distributed among the owners, while in a divorce sale, the court generally must divide the property equally. Another difference is that the divorce sale process is similar to a normal real estate sale. Both sales can be determined informally among the parties or ordered by a court.
The Partitions Sale Process
Usually, partition sales are ordered by a court. This is because partition lawsuits are often brought before courts by a property owner who wants to force a sale if the parties cannot come to an agreement. Read more about partition actions generally here.
At trial, when a court finds that a plaintiff is entitled to partition, then it will issue an interlocutory (or temporary) judgment ordering a partition. (CCP § 872.720) If it is a partition by sale, the court also appoints a referee to oversee the sale. (CCP § 873.510) The court also decides whether the sale will be a private sale or a public auction. (CCP § 873.520) The referee reports to the court and can make recommendations about the sale based on what he or she believes would be most beneficial to the parties, but the court ultimately makes the final call. (Id.) If the sale is a public auction, then it must be held in the county where the lawsuit is pending, though the court can specify a different location. (CCP § 873.670)
Upon ordering the sale, the court must give notice to all parties who appeared in the lawsuit and anyone who wrote to the referee asking for special notice. (CCP § 873.640) The notice of sale must include a description of the property, the time and place of the sale, and a statement of the main terms of the sale. (CCP § 873.650) If the sale is private, it cannot be made before the date specified on the notice, but it must be made within one year of that date. (CCP § 873.680)
After the sale, the proceeds are distributed in the following order of priority: for expenses of the sale, to pay other costs of partition, to pay any liens on the property, and finally distributed among the parties in proportion to their ownership shares as determined by the court. (CCP § 873.820.)
The Divorce Sale Process
A divorce sale can occur during a divorce proceeding. When a divorced couple cannot come to an agreement on the terms of the sale, however, they can request the court for a sale order. This can occur during the divorce proceeding or at another trial specifically for property division if the divorce proceeding is a “status only” proceeding.
First, Courts must also decide if a sale is appropriate. In deciding whether to sell and what property to sell, the court must determine whether the property is community or separate. In California, property acquired during a marriage is presumed to be community property. (Fam. Code § 2581) Separate property is generally not subject to a court-ordered division or sale. (Fam. Code § 2581)
Second, once the court orders a division of the property during the divorce proceeding, the courts will begin valuing the couple’s assets and liabilities for an equal division of the community estate. (Fam. Code § 2552.) The court’s valuation is based on its own discretion, so parties must give the court the proper evidence in this time period. (In re Marriage of Iredale & Cates (2004) 121 Cal.App.4th 321, 329)
The court will also award reimbursements for each spouse’s contributions to acquiring the community property. (Fam. Code § 2640) This can include down payments and payments toward the principal of a loan. (Id.) It does not, however, include maintenance expenses, insurance payments, or tax payments. (Id.) The spouse is reimbursed to the extent that they contributed with their own separate property. (Id.)
For some assets that are community property, the court will not order a sale when it may not be practical or equitable. It is rarely possible for a court to partition every piece of community property equally. In these instances, a court can award the community property exclusively to one party and compensate the other party by awarding an equally valued asset or payment. (In re Marriage of Fink (1979) 25 Cal.3d 877, 882.)
Third, if a sale is found to be appropriate at trial, the court will order a sale. While courts have different options over how to divide property in divorce actions, the sale of the property and distribution of the proceeds is usually preferred. A judge would write an order for the sale detailing when the sale should start, how the proceeds should be distributed, and when the sale should be closed. The judges can agree with a party’s stipulated price or order a different price based on expert testimony at trial. Parties must follow the terms in the judge’s order.
The judge may also add terms to the order that the parties must comply with since judges have broad discretion over how they can order the division of the property. (Fam. Code § 2553) An example of this is if a judge orders one spouse to reimburse the other for certain property expenses. (CA FAM § 2640) The court can also give additional awards from a party’s share if there was any deliberate misappropriation. (CA FAM § 2602) If neither party lives at the residence, the judge can divide the mortgage payments and late charges equally between the parties. (In re Marriage of Oldfield (1979) 94 Cal.App.3d 259, 263.) At this point, the parties must comply with whatever the judge ordered, even if they do not want a sale.
When deciding on the sale of a home, a party can request the court to delay the sale. This usually happens when the parties have minor children together. In deciding whether to order a delay, the court may take into consideration factors such as whether it is economically feasible, the resident parent’s income, the availability of child support, and the source of any other funds. (Fam. Code § 3801) Courts will also examine if the deferred sale is in the child’s best interest. Aside from the court order, the rest of the process is the same as a normal real estate transaction. The couples must hire an agent, show potential buyers the property, consider offers for the property, and sign a sales contract to close on the sale. (Id.)
In these instances, a court will award each spouse an undivided interest as tenants in common, thereby deferring partition until it is feasible to effect a sale and division of the proceeds. (Marriage of Cream (1993) 13 Cal.App.4th 81, 84; Marriage of Stalworth (1987) 192 Cal.App.3d 742, 748.) As part of that order, the judgment should reserve jurisdiction to partition the undivided interests at a later date; otherwise, the parties’ sole remedy would be an independent partition under the Partition Law, CCP § 872.010 et seq.
Finally, after the sale is closed, the court distributes the sale proceeds to the parties. The court takes into account all the previous evaluations that happened before the trial and then distributes the proceeds accordingly in an equal manner.
An Example
“Shawn” and “Julie” are married and decide to buy a home together. Before they got married, Shawn and Julie were co-owners of a restaurant. Shawn had a fifty percent interest in the restaurant, while Julie had a twenty-five percent interest. Julie’s cousin owned the remaining twenty-five percent interest.
Shawn and Julie want to start a new business venture and sell off the restaurant, but Julie’s cousin refuses. Shawn and Julie bring a partition lawsuit against Julie’s cousin. The court orders a public auction and appoints a referee to oversee the sale. After the court gives notice, the sale happens a couple of weeks later. The sale proceeds are distributed for expenses of the sale, to pay other costs of partition, and to pay any liens on the property. The court also distributes the remaining fifty percent to Shawn, twenty-five percent to Julie, and twenty-five percent to Julie’s cousin. Shawn and Julie start a new laundromat business that Shawn solely operates.
Later on, Shawn gets into a car accident and is awarded $20,000. Shawn also starts having a gambling addiction and takes on his own debt. Julie takes on a loan to study for a master’s degree. She also makes several payments on the principal of the loan for the home. After several years, things don’t work out between Shawn and Julie, and the couple separates. They also decide to begin divorce proceedings. During this time, the couple begins having financial problems, so Julie takes on debt to pay for food. Shawn and Julie cannot come to an agreement on how to split the proceeds of the house, so they go to court.
The court examines what awards and debts are given solely to Shawn or Julie in the divorce proceedings. Shawn’s damages award from his car accident occurred during the marriage and before separation, so that award is given solely to Shawn. Shawn’s gambling addiction was also a separate debt that did not benefit the community estate so that debt was given only to Shawn. Additionally, since only Shawn can operate the laundromat, the business is solely given to him and not put up for sale.
Julie’s loan to get her master’s degree is an educational loan, so that debt is assigned to her. The court would order Julie’s payment on the loan’s principal to be reimbursed. Julie’s debt she took on to pay for food was necessary, so the court would divide that debt equally between Julie and Shawn.
The court also hears testimony from several expert witnesses on the current market value of the home. After the trial, the court ordered a sale of their home, with a price based on the expert testimony. Although Julie believes the price is unfair, it is too late to do anything because the court has already issued the order.
Shawn and Julie hire a real estate agent and an appraiser for the home. After doing several showings, they attract several potential buyers who bring offers for the house, including Julie’s cousin. Shawn and Julie decide that Julie’s cousin has the best offer, and they sign a sales contract. The sale closes, and Julie’s cousin now owns the house.
The court then distributes the sale proceeds. The court takes into account their previous evaluations during the trial and distributes the sale proceeds in a manner that is equal to Shawn and Julie.
How Can the Attorneys at Underwood Law Assist You?
There are many differences in the process between partitions sales and divorce sales in California law. While both sales can be court-ordered, a divorce sale is closer to a regular real estate sale than a partitions sale. Additionally, the proceeds from a partition sale depend on ownership interest, while the proceeds from a divorce sale are split equally.
As each case is unique, litigants would be well-served to seek experienced counsel familiar with the ins and outs of property taxes and the law surrounding them. At the Underwood Law Firm, our knowledgeable attorneys are here to help. If you are seeking to buy out your cotenants’ interest in your property, are worried about whether you are subject to a tax reassessment, or if you just have questions, please do not hesitate to contact our office.
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