In a recent partition case between former domestic partners, the Court of Appeals of Tennessee set forth some good reminders of the factors Tennessee courts are to consider when dividing up the interests of joint owners of real estate. While the case involved former domestic partners, the principles laid out in the opinion are equally applicable to cases involving joint owners other than those who are former domestic partners.
Although the case was not filed as a partition case, it should have been, and the Court of Appeals treated it as a partition case. The case is remarkable, not only because it contains a clear and concise review of partition principles, but also, because, in reversing the trial court, the Court of Appeals showed what is not a proper way for a trial court to adjudicate a partition case.
Here are the basic facts:
- The man (“Man”) and woman (“Woman”) involved were domestic partners, but never married
- The Man and Woman bought a home (“Property”) together in 2013 for $223,000
- The Property was deeded to the Man and Woman as joint tenants with a right of survivorship
- The Man paid a $50,000 down payment from the Property using proceeds from another property that Man and Woman had owned together
- Woman testified that Man had received $200,000 from the sale of the other jointly owned property, but had never given her any of those proceeds
- The Man and Woman financed the $171,000 purchase price balance
- The Woman testified that she consistently paid $1,000 a month towards the mortgage loan for the Property
- The Man denied that she had consistently paid $1,000 a month, but admitted that she may have paid around $7,000 in total over the course of the years
- In 2015, Woman bought a home in Washington state
- Man sent Woman a $5,000 check for the down payment on the Washington home and wrote “loan” on it
- There was proof that Woman had, through her employer, provided valuable medical insurance benefits to Man for many years
- Woman also testified that she had put a lot of work into the Property
The trial court described the circumstances as a “crazy mess.” It then took a simplistic approach to resolving the dispute. It found that the equity in the Property was $229,000 and that it should be divided equally except Man should receive $10,000 from Woman’s one-half for the money paid for the down payment for the Washington home and for attorneys’ fees.
The Court of Appeals reversed the trial court. Essentially, it did so on the grounds that the trial court had applied an approach that did not comport with Tennessee law. Whether Tennessee trial courts like it or not, in a situation like this case, the court must engage in the tedious work of determining who contributed what before it rules on how much each joint owner should receive. (That is not to say that the trial court in the case did not work had to resolve the case). The overall rule in Tennessee partition cases is that, while there is a presumption that joint owners have an equal interest, a tenant who pays or contributes more is entitled to receive more.
So, what are the principles that a Tennessee court must follow when determining how to divide proceeds in a partition case? There are five, as follows:
- A joint owner who has improved the property such that its value is enhanced is entitled to be compensated for that, but only to the extent that the improvement enhanced the value of the property. Paying to add 500 square feet of livable space would almost certainly enhance the value. Painting all the rooms in the house and refinishing all the floors may not.
- A joint owner who contributes more towards the down payment or loan payments is entitled to an amount equal to that excess above what the other joint owner or owners paid.
- A joint owner who has paid more for maintenance, repair, property taxes or other expenses for the maintenance and upkeep of the property is entitled to a credit for those amounts. A joint owner, though, is not entitled to be compensated for personal services for maintenance and upkeep unless he or she can prove that there is an agreement with the other joint owners that he or she will be paid for such services.
- An owner who solely possesses the property must account to the other owners for any profits received to the extent he or she has retained profits in excess of his or her pro rata For example, if the sole possessor has realized rental income for farmland, hunting rights or renting out rooms, he or she must share.
- A joint owner who solely possesses the property because he or she has ousted or excluded the other joint owners from using it must take a deduction from his or her portion of the proceeds for rent.
Tennessee partition lawyers should remember that, where a joint owner claims that he or she received his or her interest in the land as a result of a gift by the other joint owner or joint owners, some, or all, of the above principles will not apply if a gift is found. There were no allegations in the case that is the subject of this blog that either party obtained an interest via a gift from the other.