Note: On July 13, 2017, the Iowa Supreme Court granted a petition for further review of this case. We will keep you posted!
We’ve discussed in past articles the difficulties that can arise when parents leave farmland to their children as tenants in common. Several sibling may wish to sell, others may wish to keep the land in the family. This type of disposition often leads to unfortunate fighting and lengthy litigation. And that’s just what happened in a case for which the Iowa Court of Appeals issued an opinion yesterday.
Three siblings inherited approximately 300 acres of farmland--including a multi-generational family homestead--from their father. They inherited the property as tenants in common, meaning that they each had an undivided interest in the whole property. As is often the case, two of the siblings, a brother and a sister, wished to sell the inherited property and divide the proceeds among the three siblings. The third sibling, a sister, wished to retain the homestead, a property that had been in the family for many years. The 300 acres comprised multiple smaller parcels: one that was 60 acres, two that were 40 acres, and one that was 160 acres.
The two siblings who wished to sell brought a partition action under Iowa R. Civ. Proc. 1.1201(2), asking the court to partition the property by sale and divide the proceeds. The remaining sister requested an in-kind division, at least with respect to her share. She asked to retain 79 acres, which included the multi-generational homestead.
At trial, three experts testified. They included a certified real estate appraiser, the owner of a real estate business, and an owner of an auction business. The certified appraiser testified that if the property were sold at auction, he would recommend it be sold in separate parcels because doing so would attract more bidders for each parcel. He valued the property as a whole at $3,144,000. He also concluded that the parcels requested by the third sibling could be divided from the remainder of the properties without materially impacting the sale value of the remainder. He believed that the value of those parcels was approximately one-third of the value of the property as a whole. He also testified that an in-kind division would be fair and equitable. He did acknowledge that farmland values were in a state of flux.
The owner of the real estate business testified that the parcels should be sold together to maximize their sales price. This expert, who was not a certified appraiser, testified that he did not believe that appraisal values would yield a fair result if the property were to be divided in-kind.
Finally, the owner of the auction business testified that his farm sales almost always exceeded the appraised value of the property and that auctions were the best way to establish a fair market value. He testified that separating the third sister’s requested parcels would have a limited effect on the land’s total value. He also believed that it would be preferable to sell the parcels separately to maximize the sale value. However, he testified that the only way to find the true value of the land was to put interested buyers into a room to bid on it. Anything else, he stated, would be “speculative.” The owner of the auction business was not a certified appraiser.
The district court, after hearing the experts’ testimony, ruled that the third sister had failed to prove that division in kind would be “equitable and practicable.” As such, the district court ordered that the property be partitioned through a sale and the proceeds divided.
The third sister appealed, and the Iowa Court of Appeals reversed. The court acknowledged that partition in kind was no longer the favored type of partition in Iowa. Rather, Iowa R. Civ. Proc. 1.1201(2), favors partition by sale:
Property shall be partitioned by sale and division of the proceeds, unless a party prays for partition in kind by its division into parcels, and shows that such partition is equitable and practicable. But personalty which is subject to any lien on the whole or any part can be partitioned only by sale.
Under this rule, the objecting party has the burden to prove that an in-kind division is both “equitable and practicable.” Also, when a partition can be conveniently made of a part of the premises, but not all of it, one portion may be partitioned in-kind and the other sold.
After reviewing the experts’ testimony in the context of Iowa law, the court of appeals disagreed with the district court’s conclusion that “the volatile nature of farmland as affected by the crop prices has made a partition in kind merely guesswork when factoring in the nature and qualities of the land.” Instead, the court of appeals found that “the record reflects that appraisal is absolutely more certain than mere speculation.” The court noted that the certified appraiser’s opinion was well supported with CSR ratings and comparable sales data and that it accounted for current market conditions. The court found no reason to reject the concept of a fair appraisal. The court found that the third sister proved that an in-kind division of the property would be equitable. The certified appraiser agreed that the property requested by the sister was “a solid representation of near one-third of the total value.” He also testified that the remaining real property to be awarded to the other two siblings was “a sold representation of two-thirds of the total value.” The court noted that the selection of the certified appraiser was agreed to by all parties to the litigation. Finally, the court found that another equitable factor weighed in favor of the sister. Because the property she requested was a multi-generational family farm, the sentimental attachment she may have to the property weighed in favor of dividing her interest in kind.
The court also concluded that the requested partition was practicable. The land the sister sought to divide in kind was readily identifiable and largely contiguous. No topographical features made division impractical.
The court reversed and remanded for the in-kind partition of the property requested by the third sister and a partition by sale for the remainder two-thirds’ share, with the proceeds to be divided between the other two siblings.
This case is another example of the difficulties that can arise when family property is left to the next generation as tenants in common. If possible (and of course it’s not always possible), property owners should work with their advisors to construct an estate plan that may minimize such family squabbles post-death.
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