Yes. In certain cases, a party can end up owing money after a partition. Partition actions involve the division of property among co-owners, which can give rise to numerous financial costs of partition and may reveal a financial imbalance between co-owners. Understanding what your financial obligations are in co-ownership will help you better manage your expenses and avoid financial imbalances in your co-ownership.
Costs of Partition
Under California law, the costs of partition include attorney’s fees, referee fees, surveyor fees, title report costs, and other expenses incurred for the common benefit. (CCP § 874.010.) Typically, these costs are apportioned between the parties in proportion to their ownership interests, unless the court orders another, more equitable, apportionment.
The Common Benefit
The “common benefit” means making sure each co-owner gets their fair share of the property, as decided by the court. Therefore, even if there are disagreements that need to be settled in court, the goal is to divide things fairly in the end. (Orien v. Lutz (2017) 16 Cal.App.5th 957.) Accordingly, the California Code of Civil Procedure requires the court to either apportion the costs of partition among the parties in proportion to their interests or make another equitable accounting. (CCP § 874.040.) Courts have broad discretion to apportion costs based on equitable considerations, including the parties’ ownership interests or other factors deemed fair under the circumstances. (Lin v. Jeng (2012) 203 Cal.App.4th 1008, 1025.)
Courts regularly emphasize that expenses made for the common benefit entitle the paying party to reimbursement from co-tenants in proportion to their interests. (William v. Koyer (1914) 168 Cal. 369.) Expenses made solely for individual benefit or without consent, likely will not qualify for contribution, especially if a valid agreement excludes reimbursement rights. (Wallace v. Daley 220 Cal.App.3d at 1038-1039.)
However, expenses that do qualify for contribution claims are those necessary to protect, preserve, or enhance the property. For example, in tenancies in common, expenditures like property taxes, necessary repairs, insurance, and mortgage payments are generally recoverable as contributions, assuming they benefit the common property. (Wallace v. Daley (1990) 220 Cal.App.3d 1028.)
Joint Tenancy
In a joint tenancy, courts generally do not order reimbursement or contribution for unequal payments made toward the acquisition of the property unless there is an agreement between the joint tenants for reimbursement upon sale of the property. (Milan v. De Leon (1986) 181 Cal.App.3d 1185.) This practice aligns with the statutory definition of joint tenancy, which emphasizes equal shares of ownership, by assuming the parties are sharing equal ownership responsibilities. (Civ. Code, § 683.)
Courts may, however, consider evidence of the parties’ intent and contributions to determine whether a true joint tenancy exists. (Kershman v. Kershman (1961) 192 Cal.App.2d 23.) Therefore, if the court finds that the parties intended a different ownership arrangement based on their review of other probative facts, the court may adjust the division of proceeds accordingly. (Id.) If this review reveals a substantial difference in financial contributions between the parties, one may end up owing the other money at the end of the partition, if the sum exceeds their share of sale proceeds. Typically, however, these costs are first deducted from the owing party’s share of sale proceeds, if any.
Tenancy In Common
Courts have broader discretion to order financial adjustments based on each party’s contributions and expenditures in tenancy in common relationships. Unlike joint tenants, the law does not presume tenants in common have equal ownership interests unless explicitly stated. Thus, courts may order reimbursement for payments made by one tenant for the benefit of the property, such as taxes, necessary repairs, or mortgage payments. (Rich v. Smith (1915) 26 Cal.App. 775.)
Courts may also determine ownership interests in proportion to the amounts each party contributed. (Milian v. De Leon 181 Cal.App.3d at 1196-97.) As such, ownership interests may be adjusted based on contributions to the purchase price or reimbursement may be ordered. (Id.) These adjustments or reimbursements occur in the accounting phase of a partition action and may result in financial obligations for one party.
Personal Judgments and Liens
In any instance, all co-owners must still bear the costs proportionate to their own ownership interest. As such, a party may owe money at the end of their partition action if they are required to reimburse another co-owner for expenditures made for the common benefit of the property. For example, a party may be reimbursed for amounts paid for improvements and purchase price contribution exceeding their proportionate share. (Demetris v. Demetris (1954) 125 Cal.App.2d 440, 444-445.)
Similarly, courts may authorize a personal judgment against a party when their share of approved expenditures exceeds their share of funds available for distribution. (Scott v. Staggs (1954) 129 Cal.App.2d 54, 59.)
The court may impose a lien on a tenant in common’s share of the property to ensure payment for money they owe to their co-owner. (Rich v. Smith (1915) 26 Cal.App. 775, 784.) Typically, the court determines a lien is necessary to obtain reimbursement for one co-owner’s advancements or contributions to the common benefit. (Id.)
Similarly, the court may issue a personal judgment against a party. Personal judgments most often arise in two scenarios: (1) a party’s share of approved expenditures exceeds their share of funds available for distribution; or (2) one party has financially contributed more than their fair share of the purchase price or other property costs. (Scott v. Staggs (1954) 129 Cal.App.2d 54, 60.)
In Donnelly v. Wetzel, the court authorized a personal judgment against a party who paid an excess amount for jointly purchased land, when the other parties transferred their interest to a third party. ((1918) 37 Cal.App. 741, 742-743.) Here, the court authorized the personal judgment to recover the excess payment in the paying party’s favor against the original owners even though they had disclaimed their interest in the property. The court may also authorize a personal judgment to balance accounts when one party incurs property related expenses that are not offset by their share of the proceeds or other financial distributions. (Scott v. Staggs, 129 Cal.App.2d at 60.)
What is an Example?
“Shawn” and “Julie” are siblings who inherited their parents’ house as 50/50 tenants in common. Julie wants to sell the house and split the proceeds fairly, but Shawn refuses to sell, lives in the home rent-free, and rents out the other rooms under the table, keeping the money for himself. As a result, Julie filed a partition action, seeking partition by sale, because Shawn refuses to sell or buy her out.
During the case, the Court performs an equitable accounting, which requires the court to review (1) Shawn’s exclusive use of the property; (2) his rental income; (3) damage Shawn’s neglect has caused to the property, and (4) Julie’s documented contributions to property taxes insurance, and critical repairs including installing a new roof and electrical throughout totaling $80,000.00. Julie also paid $150,000.00 on the existing mortgage loan, while Shawn contributed nothing, throughout the last ten years.
The house is sold for $800,000.00 and after sale costs, the net proceeds are $760,000.00. The outstanding mortgage balance is $550,000.00 and is paid in full at closing. The remaining $110,000.00 balance, normally, is split equally between Julie and Shawn. Here, however, Julie is entitled to a reimbursement for $115,000.00 from Shawn, which is deducted from Shawn’s share of the sale proceeds. Julie receives Shawn’s entire share of the sale proceeds, but Shawn still owes Julie $5,000.00. Therefore, Shawn has a personal judgment against him, in the amount of the $5,000.00 he must pay Julie at the end of their partition action.
Conclusion
Protecting your equity is a crucial part of any co-ownership relationship, especially if the relationship becomes contentious. If property ownership is a point of contention, partition may be a solution. At Underwood Law, our partition attorneys can help you navigate your partition action efficiently and with care. We are here to help.
