Thought Leaders: A house divided: Separating interests in real estate through partition actions
By Lia Szasz, Esq. —
Lia Szasz, Esq.
https://www.nocoattorneys.com2725 Rocky Mountain Avenue, Suite 300 Loveland, CO 80538
Under Colorado law, a partition action is a legal proceeding used to divide or sell jointly owned real estate. When co-owners can’t agree on how to manage, use, or sell their property, Colorado’s partition statute provides a mechanism to separate their interests. Any co-owner can initiate a partition lawsuit independently.
A partition action may be necessary where siblings jointly inherit real estate, but don’t agree on whether to hold the property or sell it. This is particularly common with agricultural land, where one sibling desires to continue farming or ranching and the others desire to cash out. Another common scenario is when unmarried couples purchase a home together. If the relationship ends, a partition action may be necessary to untangle their interests in the property, as there will be no divorce proceeding.
There are two types of partitions in Colorado: partition in kind and partition by sale. The court often appoints an independent commissioner to help it determine which type of partition should apply to the case. The default is a partition in kind, where the court will physically divide the property and award separate parcels to each co-owner. The alternative is a partition by sale. Property that cannot be equitably divided in kind, for example a commercial building, will generally be partitioned by sale. In a partition by sale, any liens against the property and the commissioner’s fees are paid first, and the remaining sale proceeds are then equitably divided among the co-owners. In determining the amount of proceeds to each co-owner, the court starts with their relative interests in the property and then may make certain adjustments known as offsets. To determine the amount of any offsets, the court will compute the contributions of each co-owner, such as down payments, mortgage payments, or improvements. If one co-owner has contributed more to the property than the others, the court has broad discretion to award that co-owner a larger portion of the sale proceeds.
Caution should be exercised before an owner adds another person to the title of their real property. Some property owners will add a family member to title for the sole purpose of qualifying for financing. They are often surprised to discover that their “silent owner” family member has a right to half of the property’s appreciation in a partition action. By adding another person to the title, the original owner is effectively giving that person a unilateral right to partition the property.
Partition is generally a right of any co-owner under Colorado law. An exception to this rule is where the co-owners have expressly agreed not to partition the property. Courts will also generally enforce agreements between co-owners on how property or sale proceeds should be divided in the future. Agreements like these can help avoid or streamline a partition action, potentially saving the co-owners tens of thousands of dollars in litigation costs. A wise property owner will require such an agreement before entering into a co-owner relationship with any other person. These agreements between co-owners should be in writing and signed by all co-owners. Co-owners should consider engaging an attorney to draft their agreement and ensure it is legally enforceable and effective.
A partition action can be expensive for all co-owners. The commissioner’s fees are paid before any property or sale proceeds are distributed to each co-owner. Generally, each co-owner pays their own attorney fees in a partition action. Once a dispute over jointly owned property arises, the co-owners should consider negotiating a settlement before filing a partition action. A neutral third-party mediator can assist the co-owners in coming to an agreement among themselves to divide or sell the property at a fraction of the expense the co-owners will incur in litigation. If a settlement agreement cannot be reached, however, a partition action remains the pathway to separation in Colorado.