Hybrid Partitions of Heirs Property are Allowed Under Iowa Law

On January 24, 2024, the Iowa Court of Appeals affirmed a district court’s partition order. The judge ordered a hybrid partition, where a portion of the partitioned property would be sold, and the other portion given in-kind to one owner. The one receiving an in-kind share would also owe owelty payments to the other owners. The land was heirs property under the 2018 Iowa partition law, and the plaintiffs argued a hybrid partition was not allowed for heirs property. The court of appeals found Iowa courts had a long history of allowing hybrid partitions and the 2018 statutory overhaul did not curtail the ability of the court to order a hybrid partition.

Facts

Plaintiffs and defendant were co-owners of 273 acres. Originally, the land was held by five siblings as tenants-in-common. The farming sibling died, and his ownership interest went to his wife. Over the next eighteen months, two siblings sold their interest to the others. At the time of the partition action, there were three owners – two brothers and their widowed sister-in-law.

The two brothers petitioned the district court to partition the land in November 2022. They asked for a partition by sale. The sister-in-law asked for a partition-in-kind. The land qualified as “heirs property” under Iowa Code § 651.1(5). Therefore, the partition process was controlled by Subchapter III of Iowa Code Chapter 651.  Neither party requested a cotenant buyout, as allowed by § 651.29.

The court appointed a referee with thirty years of experience as a rural appraiser to evaluate and recommend a division of the farmland. He established the market value of the property at $3,221,400. He also found a three-way split to be impractical due to the topography of the property. Instead, the referee found a two-way split with approximately two-thirds in the north section and one-third in the south section would be practical division. The referee recommended the north section be sold, with the proceeds divided among the brothers. He also recommended the south section be distributed to the sister-in-law. The sister-in-law would also pay each brother $25,600 as an equalization payment, also referred to as an owelty payment under the Iowa partition law. The brothers objected to the referee’s plan; the sister-in-law agreed with it.

The court entered an order adopting the referee’s plan. The land would be divided into two parcels - north and south. After surveying, the south parcel would go to the sister-in-law and the north parcel would be sold at auction. The sister-in-law would also make the owelty payments recommended by the referee. The brothers appealed the court’s order arguing the court had no authority to order a hybrid partition since the land was heirs property. They also argued the court failed to properly evaluate whether the partition would result in “great prejudice.”

Opinion

The court of appeals began by reviewing the history of partition law in Iowa, finding courts have previously ordered hybrid partitions. It noted the law was overhauled in 2018, and contains three subchapters: (I) Definitions, (II) General Provisions, and (III) Special Provisions for Heirs Property. Subchapter II expressly allows hybrid partitions under Iowa Code § 651.11.

Subchapter III creates a unique process for heirs property. Under these provisions, the district court appoints a referee, who appraises and sets a fair market value for the land. After the referee’s report, the court must order a partition-in-kind, unless the court finds a partition-in-kind would result in “great prejudice to the cotenants as a group” under Iowa Code § 651.30.

The brothers argued Iowa Code § 651.30 requires a partition by sale if the district court finds great prejudice. In support of their position, they used the language of § 651.32, which directs the proceedings of a partition-in-kind or partition by sale of heirs property to follow the procedures in subsection II.

The court of appeals disagreed. They found Iowa Code § 651.30 bars the district court from partition by sale unless it finds great prejudice, but that the court can order a hybrid partition once it finds great prejudice.  The court looked to the statutory scheme, the history of hybrid partitions, and the purpose of subchapter III to find district courts have the authority to order hybrid partition under the new partition laws.

The court then addressed the brother’s argument that the district court failed to make a proper evaluation of the prejudice resulting from a partition. The court stated, “the great-prejudice inquiry focuses only on whether a partition wholly in kind is required.” Once great prejudice is found, the remedy crafted by the court can only be challenged as impracticable or inequitable.

The court reviewed the record to determine whether a partition-in-kind would result in great prejudice to the cotenants as a group, and found a partition wholly in-kind would result in great prejudice since it would be impractical, harm the aggregate market value of the land, and the land had sentimental value to at least one cotenant. Therefore, the district court’s hybrid partition could only be overturned if it was impracticable and inequitable. The court of appeals found the hybrid partition was equitable and practicable, and affirmed the district court.