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By Jeffery P. Woo

“Anybody who’s been through a divorce will tell you that at one point...they’ve thought murder.”
- Oliver Stone, film director

“When two people decide to get a divorce, it isn’t a sign that they ‘don’t understand’ one another, but a sign that they have, at last, begun to.”
- Helen Rowland (1875–1950), U.S. journalist, “Divorces,” A Guide to Men (1922)

Joint ownership of property is a common way for people to acquire real estate. The benefits of joint ownership include the need for less cash to purchase property, diversification of risk and the division of labor in managing property. But what may begin as an advantageous situation can evolve into a disagreeable one over time as the co-owners’ priorities or desires change.

What happens when one co-owner of the property wants to sell and the other does not? What happens when one co-owner wants to refinance and pull money out and the other does not? What if one co-owner does not have the ability to make a necessary contribution to the property for required repairs?

Code of Civil Procedure Section 872.710 provides that co-owners of property have the right to partition property unless a co-owner has validly waived that right. In this context, the term “partition” means to either divide the property, or force the sale of the entire property. A partition by division will apply only where the property can be physically divided among the co-owners, such as with acres of undeveloped land. If that is not possible, a partition by sale will result in the court ordering the sale of the property and a division of the proceeds.

Unless the parties have agreed in writing to the contrary, there is no defense to a partition action. If a court must be brought in to order the sale of the property, it will result in the forced sale of the property at a much greater expense than if the parties agreed. Besides the sales commissions, the court will appoint a referee who will make the decisions about who lists the property, what the listing price will be, what if any improvements will be made to the property to increase its value, and, most importantly, which offer will be accepted. The referee will be paid an hourly rate approved by the court, which will be in addition to the standard commission paid to the agent. Routinely, the attorneys’ fees of the partitioning party are also paid out of the proceeds of the sale as well.

If property is held in the name of a corporation or limited liability company, a partition action cannot be used. However, under Corporation Code Section 1800, a shareholder owning at least one-third of the equity of the corporation or one-half or more of the directors may seek the involuntary dissolution of the entity, which would require the forced sale of the property much in the same way a partition action works.

Most disputing co-owners with any common sense will come to some type of agreement in order to avoid the increased costs of sale that result when a court becomes involved and to retain some control over the process of the sale. Typically, this settlement will provide that one party shall buy out the other party’s interest at an agreed price or that the property shall be listed with an agreed agent at an agreed price. In my experience, a well-thought-out settlement agreement will also provide for the appointment of a private arbitrator, who will be available, often by telephone, to resolve any one of the many small decisions the parties may disagree upon when marketing and selling property.

Even if the partition issues can be resolved, most co-owners will have disputes over the contributions each party has made to the property. Where one or both sides claim that they have made excess contributions to the property, an accounting claim will generally be filed as well.

Resolving accounting claims are usually much more involved (and therefore much more expensive) to litigate. Commonly, each side will retain an expert (usually a CPA) to review the accounting records in order to present evidence to the court. The court itself appoints its own CPA to review the records and provide a report to the court, which it will use to make its decision. The cost of the court’s expert will come out of the proceeds of the sale of the property. When an accounting claim is made in conjunction with a partition claim, the proceeds of the sale of the property will be held in a block account until such time as the accounting issues are settled.

An agreement between co-owners which sets forth how long they will hold the property, their obligation for contributions going forward, their right/obligation to refinance the property, and perhaps a reserve account will mitigate or even avoid much of the cost of litigation. However, like a marriage, co-ownership of property is a dynamic relationship affected by time and changing needs. And, like marriage, any co-ownership relationship can end in the equivalent of divorce.

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The opinions expressed in this article are those of the authors and do not necessarily reflect the viewpoint of SFAA or SF Apartment Magazine. The information contained in this article is general in nature. Consult the advice of an attorney for any specific problem. Jeffery Woo is special counsel with Sedgwick, Detert, Moran & Arnold and heads its Complex Rental Property Litigation and Consulting Group. In 2006 and 2007, he was selected by his peers as a SuperLawyer for Northern California. He currently serves as a director of the San Francisco Association of Realtors® and as co-chair of its government relations committee. He is also on the board of SFAA. His website can be found at www.mypropertyrights.com. He can be reached at jeff.woo@sdma.com or at 415-627-3607. Copyright © 2008 by Jeffery P. Woo. All rights reserved.