Farmland Not Partnership Asset

Here, a father and two sons formed a farm partnership by a written agreement in 1985. In 1995, the father and sons also signed articles of incorporation, forming a woodworking business. The profits from both entities were to be divided equally between the three. In 2007, one brother filed suit, seeking dissolution of both entities. The father and other son countersued, seeking dismissal of the petition for dissolution and demanding an accounting of both entities and an order for the son seeking the dissolution to withdraw from both entities. 

Prior to a trial, the parties did enter into an agreement that because the partnership had broken down, they would all share in the assets and liabilities equally. The brother seeking dissolution agreed that if he received his fair share, he would consent to a withdrawal from the entities. Both the partnership and the corporation would remain viable. Further, the parties stipulated that the major issue in the case was whether the 800 acres farmed by the partnership was a partnership asset.  The father and son claimed that this was not the case and that the land was owned by the father and mother as tenants in common. 

At trial, the court found that the land was, indeed, owned by the mother and father and was available to the partnership only for the partnership’s use.  The court reasoned that if the land had been contributed to the partnership, the father would have made a capital contribution grossly out of proportion to the son seeking dissolution. Since the three parties were enjoying equal draws, the trial court concluded that they intended to contribute the same amount of assets to the partnership. The brother seeking dissolution appealed to the Iowa Court of Appeals.

The appellate court agreed with the trial court that the land never became a partnership asset. There was no evidence presented to the court that the partnership purchased the land. While the partnership did pay to improve the land and did take care of the real estate taxes there was never any evidence of a capital contribution of land by the father. Thus, the partnership and corporation remained in existence and the son seeking dissolution was forced to withdraw and take whatever he was properly entitled to with him.  Reed v. Reed, No. 9-763/09-0349, 2009 Iowa App. LEXIS 1668 (Iowa Ct. App., Dec. 30, 2009).