Co-owners frequently ask our partition attorneys how to calculate their share of money that will be paid in a partition action. As experienced partition attorneys, we can guide you through the process of calculating your equity in a co-owned property in California.
First, Determine the Value of the Entire Property
The first step to calculate your share in a partition action is to determine the value of the property. Many parties turn to Zillow, Redfin, Trulia, an appraisal, a broker price opinion, and review recent comparable sales in the area to determine the value.
Second, Determine the Costs of a Sale or Refinance
One hotly disputed topic in calculating the share to be paid in a partition action is whether or not costs of sale should be included. Indeed, the co-owner being bought out might argue that there won’t be any costs of sale in a refinance or buyout by the other co-owner, usually the co-owner in possession. However, the buying co-owner may argue that they will eventually incur these costs of sale, and that the selling co-owner can’t do any better since a forced sale will result in these fees. There is some merit to both of these perspectives. However, for the sake of argument, we generally include a 5% costs of sale to determine the costs of sale. This would not include attorney’s fees or referee fees, which can be reallocated.
Third, Deduct Any Mortgages, Liens, or Judgments
Of course, determining the equity requires deduction of any mortgages (deeds of trust), liens, and judgments on the property. If those liens only attach to one co-owner, they should not be deducted at this stage of the analysis, but should instead be deducted only from the share of the liable co-owner.
Fourth, Determine the Equity in the Entire Property
By using the value of the property, less the costs of sale, and less any mortgages, liens, or judgments, you will be able to determine the equity in the entire property.
Fifth, Determine Each Co-Owner’s Ownership Interests
Using the equity in the entire property, multiple this by the ownership interests of the co-owners to determine how much each should expect to receive before partition offsets. This does not include partition attorney’s fees, costs, or referee fees. Most co-owners hold a 50/50 ownership interests. Accordingly, if the equity in the property is $500,000, each co-owner would expect to receive $250,000. Indeed, typically, the court allocates funds in accordance with ownership stakes, meaning if you own 50% of the property’s record title, you will receive 50% of the proceeds from the sale.
Sixth, Deduct Offsets for Unequal Payments Between Co-Owners
This is where the calculation gets tricky. There exists a process of modifying profit splits is commonly referred to as an “accounting” or “offsets.” This is because Code of Civil Procedure § 872.140 provides that: “The court may, in all cases, order allowance, accounting, contribution, or other compensatory adjustment among the parties according to the principles of equity.”
Notably, the frequently cited case of Wallace v. Daley (1990) 220 Cal.App.3d 1028, 1035 found that “Every partition action includes a final accounting according to the principles of equity for both charges and credits upon each cotenant’s interest. Credits include expenditures in excess of the co-tenant’s fractional share for necessary repairs, improvements that enhance the value of the property, taxes, payments of principal and interest on mortgages, and other liens, insurance for the common benefit, and protection and preservation of title.”
Any party involved in the partition lawsuit can request an accounting. During this process, the Court assesses each party’s investment in the property, considering factors such as their contributions and benefits derived from the property.
For example, perhaps one co-owner paid the entire down payment of $100,000. If the parties are 50/50 co-owners, the other co-owner should have paid $50,000. Thus, $50,000 should be deducted from what would have otherwise been their proceeds in the property.
By crunching the numbers, the court can determine the most equitable way to divide the profits.
However, it’s essential to remember that calling for an accounting comes at a cost. Disputing these financial matters will increase attorney fees, which may ultimately be allocated to the party who incurred those fees. So, before pursuing an accounting, carefully weigh the potential benefits against the expenses involved. It’s generally advisable to seek an accounting only when it promises a substantial increase in your share of the profits.
Talkov Law's Partition Attorneys Can Help
If you want to end your co-ownership relationship, but your co-owner won’t agree, a partition action is your only option. With six, full time partition lawyers, Talkov Law is the #1 partition law firm in California and has handled 250 partition actions throughout California. Every case has resulted in a sale to either a third party or one of the co-owners. Not a single court has denied our clients the right to partition or declared our client to be a non-owner. Plus, for qualified cases, there is no fee until we settle or win your case!
If you're looking to end your co-ownership dispute, contact California's premier partition action law firm by calling Talkov Law at (844) 4-TALKOV (825568) or sending us a message today.
