How Gifts Can Change the Division of Proceeds in Partition Cases

Under well-established Tennessee law regarding the partition of jointly owned real estate, there is a presumption that the proceeds of the sale of the property should be divided equally between the co-tenants (co-owners).  However, that is only a presumption and, quite often, the proceeds are not ultimately divided evenly because one or more owners have contributed more towards the down payment, loan payments, property taxes, or maintenance.

In some partition cases, there is another wrinkle, so to speak, besides the usual matter of how the proceeds should be divided.  In some cases, a co-owner may take the position that, regardless of the fact that the other owner may have contributed more towards the property, nevertheless, the proceeds should be divided equally because the other owner intended to gift half of the property to the co-owner who contributed less. In some cases, that position can be successful like it was in a recent case from the Court of Appeals of Tennessee, Dicus, et. al. v. Smith (2020).   

Here are the key facts from that case:

  • Randy Dicus (‘Randy”) was diagnosed with a terminal disease
  • Randy was not married, but had a son, Jacob
  • Randy was very close with Jacob and his family
  • Randy asked an old high school girlfriend, Lisa, with whom he had maintained contact over the years, to take care of him
  • According to Lisa, Randy told her that, if she would take care of him, he would buy her a house where they could live together while she took care of him
  • Randy told Lisa to look for a house in the $250,000-300,000 range
  • Both Randy and Lisa signed the agency agreement with the realtor who Lisa located to assist in finding a house
  • The realtor testified that Randy had stated, that, as long as Lisa was happy with the house, he would buy it
  • Randy paid the down payment of $5,000 on the house Lisa had selected and he had approved
  • The purchase price of the house was $274,000
  • The deed to the house was put in the names of Lisa and Randy
  • The deed did not contain any right of survivorship provision
  • Randy financed the balance of the purchase price of the house with a balloon note that required him to make one payment, after one year, of $280,439
  • The balloon note was secured by a savings account owned by Randy
  • Two months after buying the house, Randy made a will whereby he left all of his assets to his son, Jacob
  • In his will, Randy directed his executor to pay all of his debts (which would have included the balloon note)
  • Lisa and Randy lived in the home for about three months before Randy passed, during which time, Lisa took care of him
  • After his father’s death, Jacob, as the executor of his estate, paid off the balloon note for the house

After Randy passed, Jacob filed a partition action and requested that the proceeds from the sale of the home be applied first towards repaying Randy’s estate for the down payment and balloon payment.  Lisa admitted that she had made no monetary contribution towards the property, but asserted that she was entitled to one-half of the proceeds of the sale because Randy had made a gift to her of one half of the house.

The trial court, which was affirmed by the court of appeals, found that Randy had intended to gift a one-half interest in the house to Lisa. Therefore, Lisa was entitled to one-half of the proceeds from the sale of the house, although she had made no monetary contributions towards it.

To prove a gift under Tennessee law, the donee (in this case, Lisa) must prove that the donor (in this case, Randy) had a present intent to make a gift. The donee must prove that intent by clear and convincing evidence. In Tennessee, to determine donative intent, a court will look to the totality of the circumstances.

In this case, the trial court found Randy’s intent to make a gift based on several facts. It found that the realtor’s testimony about Randy’s statements that he wanted Lisa to find a house she liked tended to prove a gift. It found that the Randy’s financing the house by virtue of a note secured, not by the house itself, as is typical, but by his personal bank account, indicated that Randy intended to make a gift to Lisa. It also relied on testimony from a witness as to how, while he was alive, Randy would bestow large gifts of cash on Lisa.

If you have a partition lawsuit and believe that your client may be entitled to more because the other joint owner intended to make a gift, don’t lose sight of the fact that, under Tennessee law, to meet the clear and convincing standard, you will need more than the testimony of the person to whom the gift was made, as such testimony is considered self-serving.

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